Decisions of the Swiss Federal Supreme Court (CW 16 - 2023)

Overview of tax law decisions of the Swiss Federal Supreme Court published between April 17 - 23, 2023:

Judgment of March 14, 2023 (9C_686/2022): Withholding tax; pecuniary benefits; In dispute is whether the Federal Administrative Court in its judgment A-4265/2019 of December 15, 2021 (see also our article of January 16, 2022) rightly assumed that the on-charging of the management fees of the fund to A. GmbH constitutes a pecuniary benefit subject to withholding tax. It notes that A. GmbH only owned one property in Switzerland and that the costs charged to it by the fund were in fact attributable to the fund. Moreover, in practice only management fees amounting to 5% of the rental income are allowed, so that the booking of management fees at A. GmbH amounting to approximately 20% of the rental income exceeds what is allowed in practice. This does not correspond to the third party comparison. Dismissal of the appeal of the taxpayer A. GmbH.
Judgment of 20 March 2023 (9C_674/2021): State and municipal taxes and direct federal tax 2015 (Grisons); the cantons of Zurich and Grisons considered the taxpayers to have unlimited tax liability in the same tax period and the assessment rulings of both cantons became final and unchallenged; the appeal filed by the taxpayers on the grounds of intercantonal double taxation was rejected by the canton of GR; according to the Federal Supreme Court, an appeal in the canton of GR is correctly excluded in the present case. The assessment ruling of the second assessing canton ZH was neither a new significant fact nor decisive evidence and the occurred double taxation was only due to the procedural omissions of the taxpayers; instead, the taxpayers should have challenged the assessment ruling of the (second assessing) canton ZH in the ordinary proceedings; dismissal of the appeal of the taxpayers.
Judgment of March 29, 2023 (9C_675/2022): State and municipal taxes and direct federal tax 2001-2011 (Geneva); In the present case, the Federal Supreme Court has to examine a request for recusal against a judge of the court of first instance of the Canton of Geneva. The main reason given was that the judge in charge is also a partner in a law firm in which one of the partners is in personal conflict with the representative of the taxpayer. Although the judge affected by the request for recusal was in copy with the taxpayer's representative during the dispute conducted via e-mail, this does not constitute a personal bias, since he himself never commented on the matter. Dismissal of the appeal.
Judgment of March 29, 2022 (9C_724/2022): Direct federal tax and state and municipal taxes 2014-2016 (Solothurn); refusal by the cantonal assessment authority to deduct maintenance costs and costs for energy-saving measures because the work on an alpine hut was allegedly a so-called "economic new construction". In this case, the Federal Supreme Court refers to its change in practice in this regard and the recently issued leading judgment in this regard(Federal Supreme Court judgment 9C_677/2021 and our article of 26.03.2023), according to which for all work on a newly acquired property - as with all other property work - it must be clarified individually on the basis of its objective-technical character - and with the participation of the taxpayer - whether it serves to restore a previous condition of the property, i.e. whether it has a value-preserving effect. If this cannot be determined, it must be assumed in the area of income tax according to the norm theory (Art. 8 ZGB analogously) at the expense of the taxpayer that the costs do not serve the purpose of maintenance and consequently cannot be deducted. Against the background of the change in practice, the taxpayer's argument proves to be well-founded. The lower court has to examine the taxpayer's presentation regarding the objective-technical character of the individual works. Dismissal of the taxpayers' appeal and referral back to the lower court for supplementation of the facts and reassessment.
Judgment of 3 April 2023 (9C_736/2022): Value added tax, tax periods 2015-2017; A local municipality had a multifunctional sports arena built from 2012 to 2015. The construction costs were financed by the municipality within the framework of a special financing. Since July 24, 2015, the municipality has leased the sports facility (including VAT) to a joint stock company in which it holds all shares. On December 15, 2015, the resident municipality registered its (specially financed) service A in the register of VAT payers. The FTA massively reduced the input tax deduction claimed by Service A on the investments for the construction of the sports facility due to subsidy receipt and, in its assessment notice dated December 14, 2018, made an additional claim in the amount of millions. The appeal of the local authority in this regard was upheld by the FAC. The FTA, however, appealed to the Federal Supreme Court, which had to examine whether book credits in connection with land sales as well as a revaluation gain regarding building lease interest are to be classified as subsidies or other contributions under public law (Art. 18 para. 2 lit. a VAT Act) and whether they are to be considered as cash flows to department A at all. The Federal Supreme Court refers to the recent leading judgment 2C_2/2022 of 22 November 2022 (see our article on this subject), according to which flows of funds between departments of the same community or between a department and its "parent community" are not subsidies or other contributions under public law that entail a reduction of input tax. By definition, subsidies would require that the funds in question leave the circuit of the providing community. However, the Federal Supreme Court points out that in the case of unusual, irrelevant and outlandish organization of services in order to improve the input tax deduction position, the input tax deduction may be denied on the grounds of tax avoidance. Dismissal of the appeal of the FTA.
Judgment of 22 March 2023 (2C_502/2022): Tobacco tax; It was disputed and to be examined whether the tax rate applicable to water pipe tobacco stored in a duty-free warehouse was the rate before or after the revision of the law that entered into force on 1 September 2017. The tax is determined according to the tax rate applicable at the time the customs debt was incurred (the time of the customs declaration or the time of removal from storage). Accordingly, the lower court was correct in declaring the tax rate applicable after September 1, 2017. Dismissal of the taxpayer's appeal.
Judgment of 22 March 2023 (2C_503/2022): Tobacco tax; It was disputed and to be examined whether the tax rate applicable to water pipe tobacco stored in a duty-free warehouse was the rate before or after the revision of the law that entered into force on 1 September 2017. The tax is determined according to the tax rate applicable at the time the customs debt was incurred (the time of the customs declaration or the time of removal from storage). Accordingly, the lower court was correct in declaring the tax rate applicable after September 1, 2017. Dismissal of the taxpayer's appeal.
Judgment of March 20, 2023 (2C_340/2022) - intended for publication: Real estate tax 2019 (Valais); The Valais real estate tax is linked not only to the real estate as a tax object but also to the (non-)residency in the municipality. The real estate tax is generally calculated on the taxable value as of December 31 and amounts to 1 per mille for natural persons and 1.25 per mille for legal entities (Art. 181 para. 1 StG VS). For non-residents, a minimum property tax of CHF 25 is levied (Art. 181 para. 2 StG VS). The Federal Supreme Court concludes that the unequal treatment between residents and non-residents cannot be objectively justified and that the minimum property tax for non-residents violates Art. 8 para. 1 BV. Approval of the taxpayer's appeal.
Judgment of 28 March 2023 (9C_116/2023): Staats- und Gemeindesteuern und direkte Bundessteuer 2015 (Bern) (State and Municipal Taxes and Direct Federal Tax 2015); the subject of the present proceedings is solely the question of whether the lower instance u rightly confirmed the decisions of the lower instance, the Tax Appeals Commission of the Canton of Bern, by which the latter did not act on the appeals lodged against the objection decisions due to lateness. This is affirmed. Dismissal of the taxpayer's appeal.