Decisions of the Swiss Federal Supreme Court (CW 8 - 2021 )

Overview of the tax law decisions of the Swiss Federal Supreme Court published during the week of 22 - 28 February 2021.

Ruling of 1 December 2020 (2C_1059/2019), intended for publication: State and municipal taxes as well as direct federal tax 2014 (Basel-Stadt): The dispute revolves around the lump-sum provisions for repairs and maintenance made by the taxpayer for the first time in the annual financial statements of his sole proprietorship for a significant portion of his business properties. The dispute was whether these were provisions accepted for tax purposes pursuant to Art. 29 para. 1 lit. c DBG (other imminent risks of loss existing in the financial year). The Federal Supreme Court answered in the negative for the following reasons: Since maintenance work to be carried out on an ongoing basis must also be taken into account in the current account from a tax point of view, the admission of provisions is generally out of the question. Exceptions to this principle are possible if the maintenance of the real estate held by a company has been neglected in the past, this circumstance has not been taken into account by making sufficiently high depreciations and therefore in the future, due to necessary comprehensive renovation work, high expenses are to be expected which, as a result of the insufficient depreciations, cannot be capitalised or can only be partially capitalised. Only under these conditions can it be assumed that the asset (and income) situation of the company in question would be presented too favourably without allowing a provision for major repairs, and this is what provisions within the meaning of Art. 29 para. 1 lit. c DBG are intended for. However, even in cases where maintenance has not been neglected, but capitalisable value-enhancing expenditure is pending, it may be necessary in the short term - if, for example, a major repair is required for the following financial year - to set aside a provision for this purpose. a major repair for the following financial year is already imminent and its costs can be estimated - the need may arise to take account of such investments (to be capitalised after they have been carried out because of their value-enhancing character) in the preparatory phase of such work (if at the end of the financial year a concrete renovation plan is already in place, foreign exchange has already been obtained for the work to be carried out and the award of the contract is imminent) by forming a provision for accounting purposes, i.e. in this way to ensure that profits are reported as far as possible on an accrual basis. Such a need for the (short-term) formation of provisions is particularly conceivable in the case of companies with a large real estate portfolio where major repairs are carried out at regular intervals. Since the taxpayer did not prove that the above requirements were met, his appeal was dismissed.
Judgment of 9. February 2021 (2C_103/2021): Direct Federal Tax and State and Municipal Taxes 2015-2016 (Zurich); The Chairman of the Board of Directors of the taxpayer AG withdrew to a nearby foreign country for a certain period of time due to the pandemic; The taxpayer issued a forwarding order to the Post Office for this period to the holiday domicile of the Chairman of the Board of Directors; Due to the prohibition under international law to perform sovereign acts on foreign territory, a court document of the Tax Appeal Court (dismissed appeal) could not be served; Only becoming aware of the decisions through tax invoices, the taxpayer filed an appeal to the Administrative Court; The Federal Supreme Court upheld the lower court's finding that the request for restoration of time limits was unfounded and that the appeal therefore had to be dismissed; Dismissal of the taxpayer's appeal.
Judgment of 11 February 2021 (2C_857/2020): Direct federal tax and state and municipal taxes 2010 (Geneva); A. ran a sole proprietorship C and was immediately still a director of E. AG and had collective signature with his father. In 2013, the father became sole director with sole signature. E. AG had leased construction vehicles owned by the taxpayer and his father for excessive amounts. A. recorded this rental income in the accounts of his sole proprietorship. At issue is whether the overpayment is taxable as income to A. In the present case, the triangular theory applies and therefore there is no taxation for A. The balance sheet of the sole proprietorship must be corrected. Only the father can be taxed as a shareholder of E. AG. The taxpayer's appeal is upheld.
Judgment of 19 January 2021 (2C_620/2020): State and municipal taxes as well as direct federal tax 2012 (Basel-Landschaft); The starting point for the present proceedings is the Federal Supreme Court's remittal decision 2C_534/2018 (see our article of 27 October 2019), according to which the lower court had to examine the self-employment and thus the possibility of offsetting losses for the disputed tax period (delimitation from hobby). In the present case, there is already no evidence of a specific activity carried out by the taxpayer in the tax period at issue in connection with the expenses claimed, which could possibly be qualified as profit-oriented, which is why self-employment was rightly denied. Dismissal of the taxpayer's appeal.

Non-entry decisions / administrative assistance: