Decisions of the Swiss Federal Supreme Court (CW 27 - 2022)

Overview of the tax law decisions of the Swiss Federal Supreme Court published between 4 - 10 July 2022:

Judgment of 31 May 2022 (2C_680/2021): Value added tax; Based on legal services obtained abroad, a Liechtenstein company should have entered itself in the value added tax register and paid value added tax; It claimed that it had assigned the claim for the enforcement of which legal services it had obtained and merely acted as the representative of the assignee domiciled abroad; Since the invoicing was consistently made to the company (and not to the assignee), it is deemed to be formally the recipient within the meaning of Art. 45 para. 2 VAT Act according to the Federal Supreme Court. As the invoicing was made to the company throughout (and not to the assignee), it is formally deemed to be the recipient within the meaning of Art. 45 para. 2 VAT Act; a material consideration leads to the same result, as the company booked the lawyer's invoices with an effect on income (principle of materiality); an agency relationship was also not proven; dismissal of the taxpayer's appeal.
Ruling of 31 May 2022 (2C_808/2021): State and municipal taxes (Zurich) and direct federal tax 2010; In the present case, it was disputed whether the remuneration which the taxpayer paid to its sister company in the course of the 2010 tax period under the heading of "organisational costs" was justified in business terms. In the opinion of the assessment authority, there was no business justification for this booked expense, as the sister company neither had its own staff nor had it purchased the corresponding personnel resources in the 2010 business year. The taxpayer focused on formal complaints and factual objections. The exact nature of the alleged management company that ultimately bore the organisational costs remains unclear. Dismissal of the taxpayer's complaint.
Ruling of 14 June 2022 (2C_830/2021): Tax domicile ruling (intercantonal double taxation between TI and ZG); for the only tax period still contested, 2016, the canton of TI has forfeited its right of taxation. Appeal of the taxpayer against the canton of Ticino upheld; appeal against the canton of Zug dismissed.
Judgment of 23 June 2022 (2C_700/2021): State and municipal taxes (Geneva) and direct federal tax 2017; estimation of the rental value of a foreign property for determining the income tax rate. The disputed issue was whether the Spanish system for determining the rental value of a villa in Spain can be taken into account for Swiss tax purposes. The Federal Supreme Court considered that the conversion rate applied to the rental value under Spanish law was significantly lower than the rate applied to the tax value in Switzerland for this purpose. The estimated rental value of a property may not fall below 60% of the market rent. The practice of the Canton of Geneva to estimate the rental value of buildings in a country where the rental value is not taxed at 4.5% of the tax value (cadastral value) of the property (villa or flat in PSA) is confirmed. The flat rate already includes a deduction for maintenance costs, so that in addition only passive interest is deductible. The taxpayer's appeal is dismissed.
Judgment of 23 June 2022 (2C_724/2021): State and municipal taxes (Geneva) and direct federal tax 2012; estimation of the rental value of a foreign property for determining the income tax rate. The disputed issue was whether the Spanish system for determining the rental value of a villa in Spain can be taken into account for Swiss tax purposes. The Federal Supreme Court considered that the conversion rate applied to the rental value under Spanish law was significantly lower than the rate applied to the tax value in Switzerland for this purpose. The estimated rental value of a property may not fall below 60% of the market rent. The practice of the Canton of Geneva to estimate the rental value of buildings in a country where the rental value is not taxed at 4.5% of the taxable value of the property is confirmed. The flat rate already includes a deduction for maintenance costs, so that in addition only passive interest is deductible. The taxpayer's appeal is dismissed.
Judgment of 31 May 2022 (2C_455/2021): Administrative assistance AEOI agreement; The question before the Federal Supreme Court was to what extent the tax assessment of a Swiss company can be expected to be relevant for the taxation of a related party in a state without a special burden of proof rule. With regard to transfer pricing cases, the Federal Supreme Court has already stated that the purpose of administrative assistance, in addition to implementing the agreement, is to enable the implementation of the domestic tax law of the contracting states. In principle, all information that a contracting state requires for the tax assessment of its taxpayers can be essential for this purpose. In the group structure relevant here, in which the Swiss company is responsible for centralised purchasing within the group and charges the other Belgian companies a commission within the group as compensation for the services rendered, these transfer prices are included in the tax assessments of the Swiss company via the profit under commercial law. The tax assessments of the Swiss company thus contain information relating to the transfer prices. A violation of the principle of subsidiarity, as complained of, is not apparent. The Swiss company's tax assessments to check the appropriateness and economic justification of the commissions invoiced to the Belgian companies are likely to be significant. Dismissal of the taxpayer's complaint.
Judgment of 15 June 2022 (2C_282/2021): Administrative assistance DTA CH-FR; The FTA sought clarification as to whether and, if so, to what extent the transmission of the tax returns of a company domiciled in Switzerland was permissible, in particular if the requesting state wished to verify the transactions carried out by this company with a foreign company belonging to the same group and the amount of tax owed by this foreign company as part of its transfer pricing policy investigation. The FTA takes the view that the question of whether the tax returns may be transmitted cannot depend on whether the tax returns have an additional informational value to the other information to be transmitted. Similarly, the complexity of information - namely information relating to Swiss law - cannot constitute a reason to deny the prospective relevance of this information in principle. The tax return was a central element of a tax file. Among other things, it contains information on the tax factors to be taken into account in Switzerland. It thus showed the tax self-image of a company and, if applicable, its group and could be helpful in gaining an insight into the tax strategy of a group. Tax returns also provide information on the tax regime applied. Particularly in the case of cross-border group transactions, tax returns and their enclosures could provide information as to whether the booked expenses were matched by corresponding income. It can by no means be assumed that no additional information on the annual financial statements could be obtained from the tax returns. In this context, it should be mentioned that the commercial balance sheet, which is shown in the annual financial statement, regularly differs from a tax balance sheet corrected according to tax law regulations, which is shown in the tax return. If only the annual financial statements were transmitted, the requesting authority would only have knowledge of the commercial balance sheet, but not of the tax profit corrections and the resulting tax balance sheet and tax factors. In the group structure relevant in this case, in which the respondent supplies the other intra-group foreign companies with materials and charges an (internal) price for them, these transfer prices are included in the respondent's tax returns via the commercial profit. The respondent's tax returns therefore contain information relating to transfer prices. The connection required under Federal Supreme Court case law between the facts presented in the request for administrative assistance (examination of the transfer pricing policy) and the requested information (tax returns) is therefore given. Appeal of the FTA upheld.
Judgements of 27 April 2022(2C_980/2020 and 2C_981/2020 and 2C_983/2020): Kurtaxen (Ferienwohnungen), appeal against the visitor's tax regulations of the municipality of Riederalp dated 24 August 2020; The assumptions made regarding the number of beds per property (depending on size) seem reasonable. Overall, this part of the calculation of the average occupancy is therefore not objectionable. However, it is not comprehensible how the municipality calculated the overnight stays and why it used the 2016/2017 business year as a basis. In the present case, however, the municipality did not even collect any data for a substantial part of the holiday flats - those that were already billed at a flat rate according to the old regulations - but calculated with a fictitious value that it did not make more plausible. In this respect, a detailed and transparent basis for calculation is lacking; appeal partially upheld.