Overview of the tax law decisions of the Zurich Tax Appeal Court published in July/August 2020.
- StRG ZH, 23 June 2020, GR.2020.3: Property gains tax (this decision is legally binding); The taxpayer acquired an undeveloped property in 2011 and subsequently had it built over. In the course of the construction, the taxpayer got into a dispute with the general contractor (and some of the subcontractors). When the taxpayer sold the developed land plot in 2018, it claimed legal and expert costs arising from the dispute with the general contractor as investment costs in its tax return for the real estate gains tax. The Tax Appeal Court considered that legal and expert costs qualify as eligible expenses if they were incurred in the construction of a residential and commercial building and originated from the fact that the developer had to fight a dispute with the general contractor due to incompleteness and defects.
- StRG ZH, 3 June 2020, ES.2019.6: Gift tax on the retransfer of assets from son to father (this decision is final); in 2013, the son of the obligor resident in Zurich received a considerable sum from the obligor, which the son initially declared as a gift and in subsequent years as assets. In 2017, the debtor underwent a "regularisation procedure" in France, in which he paid income and wealth tax on the (untaxed) assets transferred to his son. As a result, the son transferred the assets back to the obligor in instalments in 2017 and 2018 and claimed that the transfer in 2013 was not a gift at all but a trust or loan. The cantonal tax office, however, rightly assessed the transaction as a gift, as the objective indications clearly point to a consensus regarding the gift in 2013. Thus, there is no causal relationship between the transaction in 2013 and the disputed transactions in the years 2017 and 2018, which is why they are to be classified as gifts.
- StRG ZH, 14 May 2020, ST.2019.190: Intercantonal separation in a general partnership (this decision is legally binding); shareholders of a commercial general partnership tax their income (interest on capital and profit shares) at the company's registered office. However, employee partners are taxed on their salary at their place of residence. For the purposes of intercantonal separation, remuneration is to be assumed even if the partner is contractually not entitled to any remuneration. For the purpose of determining the salary attributable to the place of residence, the third-party comparison applies. In the present case, the Tax Appeal Court confirmed the objection decision of the cantonal tax office, according to which the contractual profit share paid to an employed management employee is to be included in the determination of the hypothetical salary of the partner. In the present case, no intercantonal agreement was applicable to the tax separation between the cantons of Schwyz and Zurich. However, the Tax Appeal Court held that such an intercantonal agreement had to be rescinded in relation to the Federal Court's requirements and therefore the third-party settlement took precedence anyway.
All decisions of the Tax Appeal Court of Zurich can be accessed here.
