Overview of the tax law decisions of the Zurich Tax Appeals Court published in February and March 2022.
- StRG ZH, 2 November 2021, DB.2020.106 / ST.2020.123: Indirect partial liquidation or tax avoidance(this decision is final): Sale of company to heir holding company, whereby the seller granted the heir holding company an interest-free loan amounting to 97% of the purchase price (E. 2a). Due to the low amortisation rate, the expected amortisation period of around 21 years would have been longer than the statistical life expectancy of the seller or the lender. The heirs' holding company was able to pay the amortisation payments from dividends distributed by the acquired company from current profits (E. 2c). Consequently, there was no distribution of assets, which is why the Tax Appeals Court denied the existence of an indirect partial liquidation (E. 3c). However, the chosen procedure was qualified as tax avoidance (E. 6). In order to determine the taxable income of the seller, the court, as well as the cantonal tax office, took into account the (fictitious) financing gap. For this purpose, the loan conditions were compared with third-party conditions. The cantonal tax office argued that an amortisation period of 7 years and an interest rate in accordance with the circular of the FTA on the tax-recognised interest rates for advances and loans from participants or related persons was in conformity with the third-party comparison (E. 8a). This was confirmed by the Tax Appeals Court (E. 8d). The complaint and the appeal were dismissed. However, a minority of the court came to the conclusion that there was no tax avoidance and that the appeals should be upheld (p. 32 ff.).
- StRG ZH, 17 December 2021, DB.2020.112 / ST.2020.131: Merger with loss absorption(this decision is legally binding): Merger of a sole proprietorship and an AG. The former had loss carry-forwards before the merger and was absorbed by the AG. Although the loss carryforwards of a sole proprietorship are linked to the self-employed person, they are transferred in principle in the event of a merger with another company (E. 2b). For the transfer of loss carryforwards in the course of the merger, it is sufficient that the economic continuity of the transferring company is given (E. 3b). The subsequent offsetting of the transferred loss carryforwards proves to be permissible. There is neither shell company trading nor tax avoidance (E. 4). Appeal and appeal upheld.
All decisions of the Tax Appeal Court of Zurich can be accessed here.
