Decisions of the Administrative Court ZH (December 2021 / January 2022)

Overview of the tax law decisions of the Zurich Administrative Court published in December 2021 and January 2022.

VGr ZH, 27 October 2021, SB.2021.00104: Restoration of the time limits for objections (appeal pending before the Federal Supreme Court): Despite public requests and second reminders, the liable person did not submit a tax return for 2015 and 2016, whereupon she was assessed or assessed at her discretion. She only objected to this in 2019 and at the same time requested that the time limits for objections be restored. Since she was apparently able to file timely objections against the discretionary assessment and assessment per 2017 in 2018, it can be assumed that the impediment she had asserted (illness) had temporarily ceased to exist. It was reasonable to expect her to at least commission a third party with the execution of the disputed acts during this time. The applications for reinstatement of the time limit, which were only submitted in 2019 for the 2015 and 2016 tax periods, were therefore submitted late, so that the cantonal tax office rightly did not consider the late objections. Dismissal of the (combined) appeals of the liable parties.
VGr ZH, 20 October 2021, SB.2021.00066: Offsetting of a Zurich real estate gain against non-Cantonal operating losses (This decision is final): The obligated party is domiciled in Zurich and has operating facilities in various other cantons. In the 2014 tax period, it suffered a significant loss, which was mainly due to write-downs or value adjustments on participations. At the same time, it sold a property in Zurich in the 2014 tax period and realised a large property gain. It is disputed whether the share of the operating loss attributable to the non-Cantonal business premises can be offset against the Zurich real estate gain. The Tax Appeals Court answered in the affirmative. The Administrative Court came to the same conclusion based on the case law of the Federal Supreme Court and dismissed the appeal of the Tax Office of the City of Zurich.
VGr ZH, 20 October 2021, SB.2021.00001: Qualification of the land exchange as a boundary adjustment with corresponding tax deferral (This decision is legally binding): B and C planned to build a new development with two apartment buildings on their property. To this end, they exchanged 76 m2 of land with D, the owner of the neighbouring property. A property gains tax was imposed on both parties. The Administrative Court came to the conclusion - as had the Tax Appeals Court - that the land swap fulfilled the requirements of the tax deferral criterion of (private) boundary adjustment within the meaning of § 216 para. 3 lit. c StG and dismissed the municipality's appeal.
VGr ZH, 20 October 2021, SB.2021.00106: Own contributions / change in balance sheet (appeal pending before the Federal Supreme Court): In the parallel real estate gains tax proceedings (SB.2021.00108), the liable party claimed own contributions made by his sole proprietorship. In the objection proceedings, these were considerably reduced. The Tax Appeal Court confirmed this reduction, whereupon the liable party submitted one or several adjusted annual accounts of the sole proprietorship for the assessment of income and wealth tax, which, among other things, took into account the reduction of the personal contributions. Before the Administrative Court, the obligor requested that both proceedings be referred back to the Tax Appeals Court, as the latter had not taken into account the annual accounts originally submitted with the tax return for the examination of the personal contributions for the real estate gains tax, which also had an impact on the present income tax proceedings. The Administrative Court held that by claiming that the assessment of own contributions in the real estate gains tax case should be based on the original annual accounts submitted with the tax return and in the income tax proceedings on the adjusted annual accounts with the reduced own contributions, the liable party was abusing its rights. Dismissal of the (combined) appeals of the obligor.
VGr ZH, 25 August 2021, SR.2020.00034: Offsetting of organisational costs paid to the sister company in after-tax proceedings (appeal pending before the Federal Supreme Court): The cantonal tax office opened after-tax and criminal tax proceedings against the obligated party because it had paid ''organisational costs'' to its sister company, although the sister company did not have the corresponding staff. In this way, the sister company had been able to report a profit, which could have been offset against losses from the previous year. The Administrative Court concluded that the obligated party had failed to prove that its payments to the sister company, which were recognised in the income statement, were justified in business terms. Dismissal of the appeal and complaint of the obligated party.
VGr ZH, 21 April 2021, SR.2021.00001: After-tax proceedings due to an under-declared picture (this decision is final): The obligor declared a picture taken over in the course of an inheritance division, which was estimated by Sotheby's Zurich to be worth between CHF 1.5 million and CHF 2 million, with a property tax value of CHF 1. The Administrative Court considered that a painting valued at CHF 2.5 million obviously exceeded the usual value of residential furniture, which was why it did not constitute tax-exempt household effects. It also affirmed the existence of a new fact. As the tax return contained neither information on the insurance value of the painting nor on the artist, it had not been possible for the tax authority to verify the declaration due to the incompleteness of the valuation basis provided. In the absence of other indications, the tax commissioner was entitled to rely on the declaration of the obligor and to assume a nonvaleur. Dismissal of the complaint of the liable party.
VGr ZH, 1 December 2021, SB.2021.00012: Place of actual administration (This decision is not yet final): The obligor, which is active in the wealth advisory sector, moved its registered office to another canton in 2008, but retained its infrastructure in the canton of Zurich. With regard to the 2009 and 2010 tax periods, the Federal Supreme Court ruled that the actual administration of the obligated party was located in the canton of Zurich (2C_627/2017 of 1 February 2019). In the present proceedings, the Administrative Court had to rule on the tax periods 2011 to 2014 and came to the conclusion that the continued existence of the principal tax domicile of the liable person in the Canton of Zurich, as assumed by the lower courts, was still very probable and that it was therefore incumbent on the liable person to provide counter-evidence for the transfer of the principal tax domicile. The only new circumstance brought forward by the liable party was that an employee had also been resident at the new domicile from 1 December 2011, which, for lack of substance, did not change the assessment of the main tax domicile. Dismissal of the obligor's appeal.
VGr ZH, 10 November 2021, SB.2021.00073: Taxation of gifts from a family foundation (This decision is not yet final): The Administrative Court considered that the gifts received from the family foundation did not fall within the negative catalogue and were subject to income tax in accordance with the general clause, irrespective of whether they were still paid within the framework of an ideal purpose in accordance with the articles of association and the law. While the benefits received by the minor beneficiaries were to be attributed to the obligors as their parents who were liable to pay maintenance, the benefits received by the daughter who had come of age were, contrary to the considerations of the lower court, to be attributed to the daughter herself, which was why the appeal was to be upheld in this respect and referred back to the lower court for a new decision. Remittal.
VGr ZH, 10 November 2021, SB.2021.00072: Tax withholding; spousal liability (This decision is final): The married couple A and B were imposed an additional tax for the tax periods 2010 and 2011. The Administrative Court confirmed the decision of the Tax Appeals Court that, due to the husband's inability to pay, there was no longer joint and several liability and the wife was only liable for her share of the total tax. Dismissal of the husband's appeal.