In the Rhine Valley region, cross-border business relationships are part of everyday life for many companies – even on a small scale. Numerous small and medium-sized enterprises (SMEs) manage affiliated companies or branches in different countries. These units frequently exchange goods and services with each other. A key aspect of these interactions is the determination of transfer prices: these must comply with the arm’s length principle – meaning they must be determined as if agreed between independent third parties. This article outlines the applicable regulations in Liechtenstein – and how SMEs can ensure compliance.
Legal Basis in Liechtenstein
In the Principality of Liechtenstein, the arm’s length principle is explicitly legally established in Article 49 of the Tax Act (“SteG”):
“When determining taxable net income, revenues and expenses must be recognized as they would have been established in dealings between independent third parties. Taxpayers must demonstrate the appropriateness of transfer prices for material transactions with related parties and permanent establishments by means of documentation.”
Further provisions are contained in Articles 31a and 31b of the Tax Ordinance (“SteV”):
- Definition of related parties: persons directly or indirectly involved or benefiting, governing bodies of the taxpayer, as well as persons closely connected with them (Art. 31a SteV).
- Obligation to apply appropriate methods and maintain documentation: taxpayers must adhere to the current OECD Transfer Pricing Guidelines when determining transfer prices and must select and document the most appropriate method (e.g. comparable uncontrolled price method, resale price method, cost plus method, transactional net mar
Documentation Obligation – Also for Smaller Companies
The obligation to maintain documentation applies regardless of the size of a company. Accordingly, every taxable company in Liechtenstein should transparently disclose the relevant transfer pricing rules in an appropriately detailed documentation.
However, the extent and depth of documentation depend on revenue and other thresholds:
- Corporate groups with a consolidated annual turnover exceeding CHF 900 million: A comprehensive Master File and Local File in accordance with OECD standards are required. Additionally, all cross-border transactions involving delivery of goods exceeding CHF 1 million per company or permanent establishment per year must be documented. Other expenses or income must be documented if they exceed CHF 250,000 per category, permanent establishment and year.
- Individual companies exceeding all size criteria under Art. 1064 para. 2 of the Persons and Companies Act (“PGR”): Where all thresholds are exceeded – balance sheet total of CHF 7.4 million, turnover of CHF 14.8 million, 50 employees – both the transfer pricing methodology and its arm’s length nature must be documented. Specific transaction-level documentation is also required.
Submission Requirements and Deadlines
These documentations must be submitted to the Tax Administration upon request within 60 days, in either German or English. For transactions with related parties not explicitly covered by the thresholds above, taxpayers are still required to demonstrate compliance with the arm’s length principle using suitable documentation.
Conclusion
Even smaller companies in Liechtenstein are obliged to present their transfer pricing methodology in a transparent and comprehensable manner. The arm’s length principle is anchored in Article 49 of the Tax Act and further detailed in the Tax Ordinance. Regardless of their size, taxpayers must document the appropriateness of their transfer prices for material transactions with related parties or permanent establishments. Upon request, this documentation must be submitted to the Tax Administration within 60 days, in German or English.
