Decisions of the Swiss Federal Supreme Court (calendar week 46)

Overview of the tax law decisions of the Swiss Federal Supreme Court published in the week of 13 - 19 November 2017.

Judgment of 31 October 2017 (2C_908/2017): Direkt Bundessteuer und Kanton- und Gemeindesteuern 2015 (Geneva); Revision; in the present case there was no reason for revision or such a reason should have been asserted before the lower instance.

Judgment of 24 October 2017 (2C_571/2016, 2C_572/2016), official publication provided: Direct Federal Tax and State and Municipal Taxes 2013 (Zurich); it was disputed whether the contributions to enforcement costs, which all employees and employers subject to the present CLA must pay to the complainant as membership contributions to an association within the meaning of Article 66.2 of the CLA, should be treated as membership fees. 1 DBG; with regard to the qualification of the payments to the association, it is not the mere membership of the association based on civil law that is decisive; what is decisive is that the contributions are not income generated by the association itself, but money that comes from (de facto) members so that the purpose of the association can be pursued; in the present case, only the two associations VZLS and SZV were members of the complainant's association, but not the employees and employers organised in these associations; since the term 'membership' is broader in tax law terms than in civil law, but the employees and employers organised in these associations and, moreover, the non-members of the two associations must also be regarded as indirect members of the complainant because of their membership of the professional sector governed by the CLA; the contributions to enforcement costs paid to the complainant by the employees and employers subject to the CLA are therefore regarded as membership contributions (i).S.v. Article 66 para. 1 DBG; Approval of the complaints.

Judgment of 26 October 2017 (2C_814/2016, 2C_815/2016): Direct federal tax and cantonal and communal taxes 2006-2011 (Schaffhausen); the complainant submitted that a market value below the taxable value in the case of rented properties would be very unusual and - if the taxable value of a property fell below the taxable value as a result of an ordinary depreciation - the reverse assumption applied, namely that the depreciation was not business-related; According to Federal Supreme Court case law, a refusal to recognise a depreciation for tax purposes is only justified if it is established that the depreciation rate is constantly too high or that the property will not suffer a long-term reduction in value; in the present case, the Federal Supreme Court stated - with reference to the decision on the tax value in Geneva (BGE 132 I 175) - that the appellant's view that the tax value must form the lower limit for the carrying out of ordinary depreciation in the sense of an actual presumption goes too far; it would have been up to the appellant to assert and prove that the cantonal tax values for properties are generally, to a considerable extent and permanently lower than the actual values of the properties or to show in the specific case that the ordinary depreciation results in a constantly significantly too low book value compared to the market value; the complainant would have been at liberty to refute the presumption that depreciation at the normal rate is justified on business grounds; due to the identical content of the provisions on depreciation in the StHG and DBG, reference is made to the above with regard to cantonal and communal tax; dismissal of the complaints

Judgment of 5 October 2017 (2C_40/2017, 2C_41/2017), official publication provided: Direct federal tax and state tax 2012 (Solothurn); separate taxation of hidden reserves resulting from a practical abandonment (including reintroduced depreciation) at a reduced rate (Art. 37b para. 1 first sentence DBG) if the self-employed activity is definitively abandoned after the age of 55 or due to inability to continue due to disability. In the present decision, it was questionable whether the conditions for privileged taxation under Art. 37b DBG were fulfilled. Art. 37b DBG in conjunction with Art. 1 LGBV link the privileged taxation of liquidation gains to four cumulative conditions: (1) occurrence of disability within the meaning of Art. 8 ATSG or Art. 4 IVG; (2) definitive cessation of self-employment; (3) causal link between disability and cessation of business; (4) first-time use of the privileged taxation. In the present case, the third condition was disputed, which provides that there must be a causal connection between the disability and the cessation of business. The Solothurn Cantonal Tax Office took the view that "the causal link between the disability and the definitive cessation of the business must be handled more restrictively than under the general principles of liability law, in that a natural and adequate causal link should not suffice. Rather, in the opinion of the Solothurn cantonal tax office, the cessation of self-employment should take place immediately after the onset of disability or at least as soon as possible [...]. A causality between the definitive cessation of self-employment and existing invalidity must be denied with increasing duration between the onset of invalidity and the definitive cessation of self-employment. In the opinion of the Federal Supreme Court, it cannot be inferred from Art. 37b DBG that the onset of invalidity and cessation of business must follow each other promptly. The "interpretation of Art. 37b DBG [...], according to which the application of the norm can be denied by denying the causal connection after a certain period of time, thus finds no support from a grammatical, historical or teleological point of view, nor does it serve to combat abuses. A temporal proximity between the onset of disability and the definitive cessation of business is not necessary. "Art. 37b DBG and Art. 1 LGBV do not place stricter requirements on causality than those arising from the general principles of liability law." The appeal is upheld and the contested judgment is set aside.

Judgment of 26 October 2017 (2C_896/2017): State and municipal taxes 1999/2000 (Schaffhausen); appeal; the right to appeal was forfeited in the present case, which is why the appeal was not to be granted; obvious unfoundedness of the appeal; dismissal of the appeal.

Judgment of 31 October 2017 (2C_645/2017): State and Municipal Taxes 2014 (Aargau); Missed the deadline for objection; the medical certificates subsequently filed in the law were to be rejected as inadmissible "genuine" novelty from the law; obvious unfoundedness of the appeal; dismissal of the appeal.

Judgment of 24 October 2017 (2C_558/2016, 2C_559/2016): Direct Federal Tax and State and Municipal Taxes 2014 (Zurich); Equipping a property with marten protection fences; deductible maintenance costs or value-adding expenses; the investment concerning the marten protection fences has led to an added value of the henceforth protected roof installation or the entire property; no qualification as maintenance costs within the meaning of Art. 32 para. 2 DBG; the complaints of the Cantonal Tax Office Zurich are upheld.

Judgment of 27 October 2017 (2C_166/2016): VAT; demolition work on a property - right to deduct input tax. The exclusion of the right to deduct input tax pursuant to Art. 29(1) VAT Act is an explicit exception to the principle of Art. 28(1) VAT Act, according to which a taxable person is entitled to deduct input tax in the course of his business activities. The present case concerns the demolition of an operating building that was previously undisputedly intended to generate VAT-liable turnover and will no longer be required in the future. It should be noted that the demolition work usually involves cleaning the ground and removing other immissions that have arisen due to the previous use of the property. Provided they are not carried out by a new owner, these activities are independent of any further use of the property and are therefore not considered to be used for the provision of a subsequent service. It follows that a qualification of the demolition work can be made independently of the taxpayer's further business considerations. This means that subsequent corrections are not necessary if the new building is to be used for a purpose other than that originally intended. In the case of a change of ownership, however, the future intended use would be decisive.

Judgment of 2 November 2017 (2C_1018/2015, 2C_1019/2015): Direct Federal Tax and State and Municipal Taxes 2004 - 2005 (Geneva); The facts of the case: The company in question is a public limited company which is a limited partner in a partnership in Cyprus. For the tax periods 2003 and 2004, the tax authorities have only taken into account the income from the partnership in determining the rate. In the 2005 assessment, the tax authorities claimed additional income from the partnership and subsequently revoked its permanent establishment character. It was not until 2012 that the tax authority initiated an after-tax procedure for the periods 2004, 2005, 2009 and 2010. About the considerations: The decisive point in time for the assessment of which facts and evidence within the meaning of Art. 151 DBG were (not) known to the tax authority is the assessment. With regard to the 2005 tax period, the administration should have requested more information on the "partnership" already at this point in time, which is why the initiation of post-tax proceedings in 2012 is not permitted. With regard to the 2004 tax period, however, the situation is different: The AG did not even mention the participation in the "Partnership", which is why the tax authorities were unable to ask for more information. Thus, the initiation of an after-tax procedure is admissible for this period. Due to the lack of substance in Cyprus, the tax authorities would have had to tax the income from the partnership in Switzerland. Moreover, since it is a partnership, the Swiss AG cannot claim the participation deduction. The conduct of the AG to be assessed constitutes tax evasion pursuant to Art. 181 in conjunction with 175 DBG with respect to the 2004 tax period. [The tax fraud pursuant to Art. 186 DBG was not up for discussion].