Triangular theory (Dreieckstheorie)

The triangular theory (Dreieckstheorie) is a principle of Swiss tax law governing the treatment of a benefit assessable in money granted between two sister companies, that is companies held by the same shareholder. When one company grants its sister an advantage without equivalent consideration, for example a loan on favourable terms or an undervalued sale, the tax authority does not treat that transfer as direct.

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Under this theory, the advantage is deemed to flow up first to the common shareholder, as a taxable Hidden profit distribution (Switzerland), then down to the benefiting company, as a contribution. This detour via the apex of the triangle, the shareholder, carries tax consequences at each step, notably for profit tax and Withholding tax (Switzerland). It thus extends the logic of the hidden profit distribution.

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For example, a company sells an asset to its sister company for 0.5 MCHF when it is worth 1.5 MCHF. The tax authority treats the 1 MCHF advantage as a hidden distribution flowing up to the common shareholder, then as a contribution flowing down to the sister, with the tax consequences attached to each branch of the triangle.

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The triangular theory has concrete implications in groups of companies and family holding structures, where flows between related entities are frequent. Overlooking it exposes to heavy tax reassessments, which justifies careful analysis of intra-group transactions, upstream, within a well-mastered financial structuring.