Overview of the tax law decisions of the Zurich Tax Appeals Court published in January / February 2021.
- StRG ZH, 27 January 2021, DB.2020.123 / ST.2020.141: International spousal taxation / tax separation (this decision is not yet final): The taxpayer and her spouse have separate residences. She is resident in Zurich and he in Germany. The taxpayer's applications concern, on the one hand, the consideration of her spouse's income and assets and, on the other hand, the international elimination of various deductions. In addition, the determination of the relevant income from a property in Germany is objected to (E. 1). The approach of the cantonal tax office proves to be correct in almost all points. In particular, the subsumption of the spouse's contributions to the German long-term care insurance under the statutory lump sum pursuant to Art. 33 para. 1 lit. g DBG and Sec. 31 para. 1 lit. g StG is not objectionable (E. 2d/bb). However, contrary to the view of the cantonal tax office, a distinction must be made when separating out training and further education costs as to whether there is a factual connection with a type of income. In the case of further education costs of the liable person, such a connection is in principle given, which is why these are to be allocated to their domicile and not eliminated on a pro rata basis (E. 4b/cc).
- StRG ZH, 17 December 2020, DB.2020.114 / ST.2020.133: Prerequisite for assessment or assessment according to dutiful discretion in the case of transfer prices (this decision is final): The cantonal tax office required a company to provide evidence of the business justification for consulting services provided by the parent company. The cantonal tax office did not consider the submitted documents to be conclusive, as they were not sufficiently detailed. Subsequently, it estimated the consulting expenses according to its best judgment. In doing so, the tax office placed too high demands on the bookkeeping of the obligated party (E. 6). Based on the proper accounting of the obligated parties, it would have been up to the cantonal tax office to examine the third party conformity of the transfer price (E. 7). By failing to carry out this examination and also by not taking the necessary investigative steps, the tax office violated the relevant procedural law. This deficiency cannot be remedied by the tax appeal court (E. 8). Partial approval and rejection.
- StRG ZH, 15 December 2020, DB.2019.96 / ST.2019.124: Place of actual administration in case of distribution of management among a number of locations (this decision is final): The managing director and sole shareholder of the company generally carried out his business activities directly on site at his clients' premises. Therefore, in principle, the company did not need fixed facilities. The company had its registered office in Cyprus, although this was undisputedly only a letterbox domicile. If, as in the present case, the management is spread over many individual locations, the centre of gravity must be determined among these locations. In this context, the same requirements must be applied to the geographical dimension of the scope of consolidation as to the statutory seat (E. 3). In contrast to permanent establishments, the place of actual administration does not have to be of absolute quantitative significance (E. 4c and 4d). The centre of gravity can therefore already be given with a few working days per year, if the activity at any other location is less. The Tax Appeal Court left open to what extent qualitative elements of the various locations (such as permanence) are to be taken into account (E. 4e). Dismissal.
- StRG ZH, 7 December 2020, DB.2020.53 / ST.2020.61: Treatment of the right of residence upon transfer of an agricultural business (this decision is final): If a right of residence is stipulated upon transfer of an agricultural business (conditional use), the entry of the present value of the right of residence (at least) in the equity of the party encumbered with the right of residence in the case of agricultural business transfers was accepted by the cantonal tax office without this ever having been recorded for income or profit tax purposes by the party taking over the business. According to the new practice, the cantonal tax office still accepts the inclusion in equity, but no longer as an income-neutral transaction. It was disputed whether the present value of the housing right, which had already been booked to equity, had to be offset or whether it could be carried as a liability in the form of a provision (E. 3). According to the new practice, such a subsequent recognition as a liability by means of a balance sheet adjustment or balance sheet amendment is not possible (E. 5). In addition, the amount of a set-off for the free boarding of two horses of a related person was disputed. In this respect, the tax office rightly based its assessment on a market price and not on the imputed rental value in accordance with the (Agricultural) Rent Ordinance (E. 6). Partial approval regarding AHV provision and second-earner deduction (E. 7).
- StRG ZH, 25 August 2020, DB.2019.90 / ST.2019.116: Offsetting of costs for major repairs in the presence of a renewal fund (this decision is final): The renewal fund of a building cooperative is a permissible lump-sum provision for major repairs. If costs for major repairs are subsequently not debited to the renewal fund but booked as expenses, they are to be offset against income and (as a taxed hidden reserve) against capital (E. 1d). The renovation of kitchens and bathrooms (approx. Fr. 1.2 million) qualifies as a major repair, insofar as it preserves value (E. 4). The repainting of a facade (approx. Fr. 390,000.-) and the staircases (approx. Fr. 90,000.-) also qualify as major repairs (E. 5). Dismissal.
The decisions of the Zurich Tax Appeals Court are available here .
