Decisions of the Swiss Federal Court (CW 22 - 2019 )

Overview of the tax law decisions of the Swiss Federal Supreme Court published in the week from 27 May to 2 June 2019.

Judgment of 6 May 2019 (2C_249/2019): Direct federal tax and state and municipal tax 2011-2012 (Appenzell Ausserrhoden); Profitable agricultural activity; Legal force of periodic tax assessments; the appeal is dismissed.

Judgment of 6 May 2019 (2C_277/2018): State and municipal tax 2011 (Zurich); complaint of violation of the right to be heard; determination of the tax value of participations in a (personal) public limited company; existence of extraordinary income; the complaint is dismissed.

Judgment of 10 April 2019 (1C_315/2018, 1C_316/2018, 1C_329/2018, 1C_331/2018, 1C_335/2018, 1C_337/2018, 1C_339/2018, 1C_347/2018) Referendum of 28 February 2016 on the popular initiative "For marriage and the family - against the marriage penalty"; complaints against the decisions of the Cantonal Government of Zurich of 27 June 2018, the Cantonal Government of Solothurn of 25 June 2018, the Cantonal Government of Basel-Landschaft of 28 June 2018, the Cantonal Government of Aargau of 27 June 2018, the Cantonal Government of Basel-Landschaft of 28 June 2018, the Cantonal Government of Aargau of 27 June 2018 and the Cantonal Government of Basel-Landschaft of 28 June 2018 June 2018, the Government Council of the Canton of Berne on 27 June 2018, the Government Council of the Canton of Zug on 26 June 2018 and the State Council of the Canton of Valais on 28 June 2018; the appeals are upheld and the contested decisions of the Government Councils of the Cantons of Zurich, Solothurn, Basel-Landschaft, Aargau, Berne and Zug and the State Council of the Canton of Valais are reversed. The federal referendum of 28 February 2016 on the popular initiative "For marriage and family - against the marriage penalty" is cancelled; cf. also our contribution of 14 April 2019 and the subsequent decision. A detailed summary follows.

Judgment of 10 April 2019 (1C_338/2018), official publication provided: Federal referendum of 28 February 2016 on the popular initiative of 5 November 2012 "For marriage and family - against the marriage penalty"; appeal against the decision of the Vaud State Council of 27 June 2018; the appeal is admissible and the contested decision is annulled; the referendum of 28 February 2016 on the popular initiative "For marriage and family - against the marriage penalty" is annulled; cf. also the above decision and our contribution of 14 April 2019. A detailed summary follows.

Judgement of 9 April 2019 (2C_488/2017): Value Added Tax (VAT); tax period 2011; sale of emission reduction certificates; according to the administrative practice of the Federal Tax Administration (FTA) prevailing until 1 July 2010, the sale of emission rights (Art. 2 para. 3 CO2 -G 2011) and the emission reduction certificates of interest in the present case qualify as a taxable exchange of services; however, the FTA amended its administrative regulation (VAT Info 04, "tax object") as of 1 July 2010 to the effect that trading in these certificates is exempt from the objective obligation to pay VAT in its entirety (Art. 21(2)(19)(e) MWSTG 2009); in the present case it was disputed whether the turnover from the sale of CERs and VERs and from the sale of forwards and options on CERs and VERs was taxable or exempt from tax; in decision A-5769/2016 of 11 April 2017 (cf. our contribution of 23 April 2017), the lower-instance Federal Administrative Court considered that "the CERs and VERs are neither securities [...] nor book-entry securities [...]. Nor can it be said that purchase contracts for CERs or VERs constitute derivatives [...]. Consequently, the sale of CERs and VERs is not covered by Article 21(2)(19)(e) of the VAT Act 2009 [...]. With regard to the sale of forwards and options based on a CER or VER, the FTA agrees that these are actually sales of derivatives within the meaning of Art. 21(2)(19)(e) MWSTG 2009 [...]. Accordingly, the Federal Administrative Court dismissed the case to the lower court in the sense of the considerations for the new determination of the tax claim for the 2011 tax period. The FTA lodged an appeal against this decision with the Federal Supreme Court. The latter had to examine whether the lower court had come to the conclusion, in conformity with federal law, that the sale of emission reduction certificates of the types CER and VER did not fall under Art. 21(2)(19)(e) MWSTG 2009, which is why the benefits are taxable. The VAT treatment of the sale of forwards and options on emission reduction certificates of both types was no longer disputed. After detailed consideration, the Federal Supreme Court concluded that the emission reduction certificates are not covered by the "uncertificated securities" pursuant to Art. 21 para. 2 no. 19 lit. e MWSTG 2009 and are not comparable to the classic commercial law "securities, uncertificated securities and derivatives", which is why their transfer - in accordance with the opinion of the Federal Administrative Court - must be qualified as a taxable service. This also complies with the European Union's VAT directive law. Consequently, the FTA's appeal proves to be unfounded and is dismissed.

Judgment of 1 May 2019 (2C_1108/2018): Cantonal taxes 2013 (Ticino); the refusal of the cantonal deduction for children in education was not arbitrary; dismissal of the taxpayer's appeal.

Judgement of 9 May 2019 (2C_389/2018): Direct federal tax and state and municipal tax 2014 (Lucerne); refusal of a loss deduction due to independent securities trading; activity of professional securities trading was not recognised; in the opinion of the Federal Supreme Court, the contested judgement "certainly takes into account the fact that both the large number of transactions carried out in 2014 (a total of 88, of which 77 were at a profit, 11 at a loss) and their amount (approximately CHF 5.7 million) in itself speak against private asset management or a hobby or hobby. Nevertheless, in its comprehensive assessment of the evidence, the Cantonal Court permissibly attached even greater weight to the fact that the financial activity carried out was loss-making - as it has been every year from at least 2000 to 2012 - which excludes the characteristic of objective profit-making. (E. 3.2.) Self-employment is therefore also not present. "If an activity does not bring in anything in the long run, this is a clear indication that there is a lack of subjective or objective profit motivation. People who are really in gainful employment will usually be persuaded of the futility of their work after persistent professional failures and will then give it up. If he continues to do so, it is to be assumed that, from a subjective point of view, motives other than the purpose of profit are decisive. (E. 3.2.) The complainant's objections to this proposal are not convincing. The appeal is dismissed.

Judgement of 13 May 2019 (2C_421/2018): Real estate gains tax (Zurich); for the determination of the real estate gain as the difference between the proceeds of sale and the investment costs (purchase price or replacement value plus expenses) in the case of an acquisition made more than 20 years ago, the Canton of Zurich provides for an option for the taxpayer; instead of the purchase price as the replacement value, the taxpayer may credit the market value of the property twenty years ago (E. 2.4.); in the present case, taking into account the market value twenty years ago has (undisputedly) resulted in the property gain being much lower than the property gain determined under commercial law, and a considerable part of the property gain under commercial law thus remained untaxed. The complainant fails to recognise, however, in the opinion of the Federal Supreme Court, "that the use of the market value of 20 years ago for the calculation of the gain on real estate - although it has such an effect - does not constitute a tax privilege granted by the Canton of Zurich, but is merely based on a substitute value for reasons of practicability [...]. Accordingly, in the case of an intercantonal company such as the complainant, it is out of the question to deduct the part of a real estate profit which is de facto not taken into account for real estate profit tax because of the focus on the substitute value from the total profit determined for the purposes of profit taxation and on which the tax exemption is based, in so far as it is to be allocated to the Canton of Zurich [...], in order to determine the taxable real estate profit. (E. 3.3.1.) "In addition, the disadvantage objected to by the complainant must be accepted as a consequence of the priority of the profit tax exemption for intercantonal companies. The most recent case law of the Federal Supreme Court, which excludes the occurrence of so-called separation losses in intercantonal real estate sales [...], is based on the system of the commercial law profit that is decisive for income and profit tax. This will ensure that there is no loss of revenue, while at the same time complying with the harmonization requirements [...]". (E.4.3.3.) The appeal is dismissed.

Decisions not to intervene / inadmissible appeals