Decisions of the Swiss Federal Supreme Court (CW 28/29 - 2023)

Overview of tax law decisions of the Swiss Federal Supreme Court published between July 10 - 23, 2023:

Judgment of 5 June 2023 (9C_678/2022): Post-tax proceedings state and municipal taxes and direct federal tax 2008 (Geneva); The monetary value of the service, which was determined on the occasion of a VST control, can also be taxed for direct tax purposes. In case of deviations of the agreed transfer prices without prior confirmation of the authorities, the original ruling does not protect the taxpayer. Dismissal of the taxpayer's appeal.

Judgment of 22 June 2023 (9C_687/2022): Withholding tax; reporting procedure (see our blog post of 13.03.2022), confirmation of the judgment by the BGer. Dismissal of the taxpayer's appeal.
Judgment of June 6, 2023 (9C_161/2023): State and municipal taxes and direct federal tax 2017 (Thurgau); the deductibility of maintenance costs for a property was in dispute. The lower court assumed an economic new construction and denied the deduction of the maintenance costs. The economic new construction was abandoned by the Federal Supreme Court in its ruling 9C_677/2021 of February 23, 2023 (see our article of March 26, 2023). According to the intention of the legislator, for all works on a newly acquired property - as for all other property costs - it has to be clarified individually on the basis of their objective-technical character and with the participation of the taxpayer whether they serve to restore a previous condition of the property, i.e. whether they are value-preserving or not. The taxpayer's appeal is upheld and the decision is referred back to the lower court for reassessment.
Judgment of June 6, 2023 (2C_946/2021): Automatic exchange of information (MAC/MCAA; Switzerland-Argentina); Art. 19 para. 2 sentence 2 AEOI is to be understood as giving a person who is the subject of an automatic exchange of information the possibility to request an order from the FTA pursuant to Art. 25a VwVG if the automatic exchange would constitute for him a measure contrary to public policy. Analogous to the case law on Art. 26 para. 3 lit. c OECD-MA, the reservation of public policy refers to national public policy. The term is to be interpreted restrictively and in accordance with the rules of good faith in the sense that it may not be used by a state to hinder the proper application of the treaty. Although by its very nature it defies precise description, it should be noted that a violation of public policy occurs when fundamental legal principles are violated or the act in question is incompatible with the Swiss system of law and values, the result is shockingly at odds with the meaning and purpose of its own legal system, or would intolerably offend the sense of justice in Switzerland. However, not every deviation from the mandatory provisions of Swiss law constitutes a violation of public policy. Such a restrictive interpretation does not violate Art. 8 ECHR and thus also Art. 13 ECHR, as long as other means are used to prevent the dissemination of data outside the circle of automatic exchange of information. In other words, a person subject to the reporting obligation can only obtain an order from the FTA within the framework of the procedure for the automatic exchange of information pursuant to Art. 19 para. 2 sentence 2 AEOI in conjunction with. Art. 25a VwVG if and to the extent that the alleged violation of Art. 8 ECHR is mixed with a violation of public policy.
Judgments of June 19, 2023: 9C_97/2023, 9C_98/2023, 9C_99/2023, 9C_108/2023, 9C_109/2023, 9C_110/2023: State and municipal taxes (Appenzell Ausserrhoden) and direct federal tax 2019: discretionary assessments; the present six judgments are almost identical in terms of facts and timing and differ only on the basis of the tax factors, which is why the AGs under uniform management are summarized below: The discretionary assessments were not void; the requests for suspension or for obtaining a psychological opinion for the sick board of directors as well as the taxpayers' appeals are dismissed. The legal representative of the complainant has already recently filed appeals in several essentially similar proceedings concerning companies controlled by the same board of directors with similar arguments, all of which the Federal Supreme Court found to be manifestly unfounded (cf. our article of February 5, 2023). The legal representative must therefore be warned that in the next such case he will have to expect the imposition of court costs (five of the judgments), while in the case of the obviously inadmissible appeal against the zero assessment (9C_109/2023) the legal representative will be ordered to pay half of the court costs.
Judgment of June 21, 2023 (9C_279/2023): Real estate gains tax 2020 (Aargau); in dispute was whether the complainant had sold or given away real estate. The complainant had concluded publicly notarized purchase agreements with his nieces for his shares in two plots of land. Four months later, shortly after receipt of the real estate gains tax return, he agreed with deeds of gift that he would give them his shares in the properties. Based on the principle of realization of income, the complainant acquired a fixed legal claim to performance of his shares upon conclusion of the purchase agreement and realized it at the time of the agreement. The deeds of gift do not change this. The complainant does not succeed in explaining why he concluded publicly notarized purchase agreements with his nieces if the sale of the properties is said never to have been under discussion. Dismissal of the appeal insofar as it can be admitted.
Judgment of 21 June 2023 (9C_698/2022) - intended for publication: VAT 2013-2017; The taxable limited liability company (registered in the VAT register; effective accounting method) purchased timber "ex stock" from forest owners (original producers) in order to sell it after felling to sawmills in Switzerland and abroad. The taxpayer commissioned subcontractors with the logging work, which it compensated on its own account and thus bore the so-called production costs. From the timber price to be paid to the original producers, the taxpayer deducted the actual production costs and a margin ("coordination deduction"). Regarding the "coordination deduction", the lower court bindingly held in favor of the taxpayer and in the absence of an appeal by the FTA that this deduction led to a reduction in remuneration and was not taxable for the taxpayer. The only issue in dispute before the Federal Supreme Court was the VAT assessment of the effective production costs passed on by the taxpayer to the original producers - either as an offsetting of services (in the case of two services) or as a reduction of remuneration (in the case of only one service). By first charging the production costs to the expense account and then crediting them "one for one" to the income account, the taxpayer applied the so-called gross principle under commercial law - i.e. separate accounting of performance and consideration. This contrasts with the so-called net principle, which is reserved for minor "adjustment items" such as discounts, which may be credited directly to the revenue. According to the BGer, the scope of application of the reduction of remuneration by commercial law is narrow and reserved for the actual "correction items" (rebates, discounts, notices of defects, bad debt losses and the like) which are directly related to the service rendered and are proportional (i.e. change of the basis of assessment, no cancellation or novation of the service relationship). In the present case, the Federal Supreme Court came to the conclusion that the oncharging to the original producers did not constitute a minor proportional correction item and that there was no sufficiently direct connection to the timber supplies received from the original producers. Thus, the taxpayer has to pay VAT on the production costs. In return, it is entitled to deduct input tax in the same amount (which it has already done). Dismissal of the taxpayer's appeal.
Judgment of June 23, 2023 (9C_647/2022): Direct federal tax and State and municipal taxes 2017 (Zug); in dispute is whether the company A. AG can be attributed a permanent establishment in E. (China) can be attributed. The lower court did not examine whether a foreign permanent establishment can be assumed from the perspective of internal law, as it concluded that the fixed business establishment was attributable to the parent company of A. AG (parent company appeared as a contractual partner in the lease agreement and the persons employed in the E. office were not employed by or organizationally integrated into A. AG). The fact that the company had assumed costs in connection with the E. location and its conversion was considered by the lower court to be an indication of the company's actual power of disposal, at least by analogy. However, in its view, this did not weigh heavily enough to conclude on the basis of this alone that the company had actual power of disposal. A. AG was not able to submit any arguments to the contrary. Furthermore, it has to be examined whether the company has to be granted relief from taxation according to the DTA CH-China. A representative permanent establishment is also not given. Thus, the lower court concluded that the costs should have been borne by the parent company of A. AG. A. AG made a hidden profit distribution to its parent company. Dismissal of the appeal of the taxpayer A. AG.
Judgment of June 22, 2023 (9C_633/2022): Connection fees of the municipality of Rheinfelden/AG, 2016 levy period; The cost recovery principle does not have constitutional rank. Therefore, the Federal Supreme Court can only review compliance with a statutory cost recovery principle insofar as it originates from federal law, federal ordinance law or one of the other legal sources mentioned in Art. 95 FSCA. Dismissal of the appeal.
Judgment of 26 June 2023 (9C_617/2022). Customs duties; decision of the BVGer A-2332/2019 of 1 February 2022 confirmed (see our article of 13.02.2022).