Decisions of the Swiss Federal Supreme Court (CW 21 - 2021)

Overview of the tax law decisions of the Swiss Federal Supreme Court published in the week of 23 - 30 May 2021.

Ruling of 3 May 2021 (2C_756/2020): Direct Federal Tax and State and Municipal Taxes 2009 (Zurich); Hidden profit distribution; The shares of D. AG and G. AG are entirely in the private assets of the taxpayer. Before the taxpayer sells D. AG, D. AG establishes a building lease in its own favour on several properties at a building lease rate above the market value. On the same day, D. AG sells these properties to G. AG for an amount below the market price. According to the triangular theory, both the underpriced sale and the inflated building lease interest constitute a hidden profit distribution in favour of the taxpayer. The fact that the sales price of D. AG was reduced in accordance with the inflated building lease interest does not change this. Dismissal of the taxpayer's appeal.
Judgment of 7 May 2021 (2C_25/2021): Direct Federal Tax and State and Municipal Taxes 2017 (Geneva); the subject matter of the dispute is the calculation method for the amount of the imputed rental value of a property located abroad. A flat-rate calculation method for properties located in countries where there is no imputed rental value taxation is not contrary to federal law. This does not exclude that a flat-rate calculation method can also be applied if the country has a taxation of the imputed rental value. In Spain, a tax is levied on the imputed rental value, which is why the lower court should have examined whether this imputed rental value, calculated according to Spanish criteria, is legally compliant. Dismissal of the taxpayer's appeal and referral back to the lower court.
Judgment of 25 March 2021 (2C_750/2020): Administrative assistance DTA CH-IN; The Federal Supreme Court had to rule on the question of whether a threatened retroactive application of domestic substantive criminal law by the requesting state constitutes a violation of the reservation of public policy pursuant to Art. 26 para. 3 lit. c DTA CH-IN. However, the reservation of public policy should only be applied extremely rarely and in extreme situations. The prohibition of retroactivity under criminal law is regulated in Art. 7 para. 1 ECHR. The principle of speciality ensures that information transmitted through administrative assistance is not used for criminal law purposes outside the scope of administrative assistance. In contrast, it offers no protection if the request for administrative assistance serves to enforce criminal tax law. The complainant claims that after Switzerland has provided administrative assistance, there is a threat of criminal tax proceedings based on retroactively applicable substantive criminal law provisions of the Black Money Act. Although this cannot be ruled out, the complainant does not succeed in showing with sufficient probability that this could actually be the case. It is therefore not to be assumed that the provision of information in the present case violates public policy. Dismissal of the complainant's appeal.
Judgment of 29 April 2021 (2C_989/2020): Direct Federal Tax and State and Municipal Taxes 2012 - 2016 (St. Gallen); The lower court rightly did not act on the request for recusal of the competent tax commissioner. This was filed too late and would also have had to be rejected for material reasons. The right to inspect files was also not violated by the lower instance, as the files in question were not part of the proceedings and the contested decision was not based on them. Dismissal of the taxpayer's appeal.
Ruling of 3 May 2021 (2C_548/2020, 2C_551/2020): Direct federal tax and state and municipal taxes 2014-2015 (Basel-Landschaft); Offsettable services between sister companies; It was disputed whether the offsetting of services for various services (payroll administration, patient and financial accounting, medication administration, etc.) provided by B. AG to A. AG stood up to third-party comparison. AG stood up to comparison with third parties. The lower court based this question on the cost-plus method and rejected the price comparison method requested by A. AG on the grounds that a review of comparability was not possible. It is already questionable whether comparative offers that did not result in the award of a contract are at all suitable for carrying out a price comparison, since from the outset they are only of limited informative value compared to transactions that were actually carried out. Moreover, the offers in question did not concern the period at issue here, but were obtained years later. The services provided are considered to be of low value added. For such services, the OECD Transfer Pricing Guidelines provide for the cost-plus method. The entire circumstances here point to participation-induced pricing (sister company without staff in a canton with a lower tax rate). If, in this situation, the lower court rejected the price comparison method and answered the question of the third-party comparison by means of the cost-plus method, it did not violate its discretion in choosing the method. The A. AG has not otherwise challenged the calculation bases used by the lower courts, in particular the established margin of 10 per cent. Dismissal of the taxpayer's appeal.

Non-entry decisions: