Decisions of the Administrative Court ZH (June/July 2020)

Overview of the tax law decisions of the Zurich Administrative Court published in June and July 2020.

VGr ZH, 20 May 2020, SB.2020.19: Tax remission / Reasonableness of the silver plating of a self-occupied property (this decision is not yet final and absolute); The complainant acquired a self-occupied property only a few years ago and invested considerable amounts in it even at a time when the deterioration of her economic situation was becoming apparent. She has thus weakened her liquidity, which is why it is reasonable to expect her to pay her outstanding taxes from her net assets, if necessary by selling her currently owner-occupied property. In addition, the remaining debts and the failure to form tax provisions stand in the way of a tax remission. Rejection.
VGr ZH, 29 April 2020, SB.2019.00083: Tax sovereignty of a personal GmbH (this decision is final); the complainant GmbH is domiciled with a trust company in Canton X. The sole managing director lives in the canton of Zurich. The Administrative Court considered that the business connections of the complainant to the statutory seat would prove to be extremely insignificant. Taking into account the overall circumstances, it could not be assumed that the economic and actual centre of the complainant's business was located at its registered office. Furthermore, the operational business activity was closely linked to the physical whereabouts of the complainant's managing director. The managing director works from everywhere, including the home office. Since the business activity took place predominantly in the Canton of Zurich, the main tax domicile in the Canton of Zurich, as assumed by the lower instance, seemed very likely. Dismissal of the appeal.
VGr ZH, 8 April 2020, SB.2019.00104: Differentiation of child, matrimonial and child support (this decision is legally binding); In his tax return 2014, the obligated person declared maintenance contributions for his then separated spouse and maintenance contributions for his children (born 1993 and 1996). A portion of the spouse's maintenance was intended for the children's school fees. The tax office did not allow this to be deducted and also reduced the maintenance contributions to the children to the extent that these related to a period after they had reached the age of majority. The Administrative Court considered that the distinction between spousal maintenance and child maintenance became relevant for tax law when the children came of age, since maintenance paid by persons of age was no longer deductible for tax purposes. The school fees paid for the children served to cover their needs, which is why, irrespective of any possibility of offsetting the maintenance payments to be made to the spouse living separately, as provided for under civil law, child maintenance was to be assumed to be non-deductible as soon as the children came of age. Dismissal of the complaint.
VGr ZH, 6 April 2020, SB.2019.00120: Taxation of benefits from an annuity insurance policy (appeal pending before the Federal Supreme Court); The annuity insurance policy in dispute is an annuity contract under the law of obligations. In terms of tax law, it is not a temporary annuity, but also an annuity for life. The provisions of § 22 para. 3 StG and of Art. 22 para. 3 DBG are also to be applied schematically in the special individual case, which is why the special features of the pension insurance relationship affected by the dispute, as claimed by the obligors, cannot be taken into account. The benefits paid in the 2014 tax period are taxable at a flat rate of 40%. Dismissal of the appeal.
VGr ZH, 1 April 2020, SB.2019.00108: Main tax domicile of a natural person (this decision is legally binding); the 30-year-old compulsorily resident works in the Canton of Zurich, where he is registered as a weekly resident. His main tax domicile should be in his home canton. The cantonal tax office claimed tax sovereignty by way of a preliminary decision from 2015. According to Federal Supreme Court case law, there is a natural presumption that the tax domicile of an unmarried, 30-year-old complainant is the place of weekly residence. The Administrative Court concluded that the complainant had not succeeded in proving prior relations with his home canton and thus the natural presumption in favour of the place of weekly residence was not invalidated. The appeal was dismissed.
VGr ZH, April 1, 2020, SB.2019.00100/101: Discretionary assessment of real estate gains tax (appeal pending before the Federal Court); The obligated party sold 15 apartments of an apartment building to various buyers and only submitted one real estate gains tax return. He did not comply with the multiple requests or reminders to submit a real estate profit tax return per change of ownership, which is why the municipal tax office proceeded to discretionary assessments. The Administrative Court concluded that the obligated party had failed to provide evidence that the present estimate of the value-enhancing costs was obviously too low or that the reference to the valuation order was arbitrary. Rejection of the complaints.
VGr ZH, 26 March 2020, SB.2020.00008: Procedural Obligations of Inactive Companies / Free Administration of Justice for Legal Entities (this decision is final); The GmbH was assessed for the tax period 25.8.-31.12.2016 according to dutiful discretion after it had not filed a tax return despite a reminder The dutiful person claimed that it had been inactive in the disputed period, which is why completing a tax return was disproportionate. The Administrative Court concluded that even an inactive company must file a fully completed tax return. However, it upheld the complaints of the obligated parties because the period in dispute was the year of foundation and the obligated party was only obliged to submit a tax return in the following year (as an excessive business year) based on § 83 para. 3 StG/Art. 31 para. 2 StHG.
VGr ZH, 11 March 2020, SB.2018.000132: Property tax value of the shares of a hotel business (this decision is final and absolute); the subject of the dispute is the property tax value of the shares of a hotel business. It is undisputed that the enterprise value is to be determined using the Praktiker method. What is disputed is the net asset value of the company and in particular the question of how high the market value of the hotel property should be estimated. The Tax Appeal Court obtained an expert opinion to determine the market value. The Administrative Court came to the conclusion that the expert opinion was not sufficiently substantiated, particularly with regard to the discount and capitalisation rate, and therefore the market value determined by the expert opinion could not be used as a basis. Referral back to the Tax Appeal Court for a new assessment.
VGr ZH, 11 March 2020, SB.2019.000117: Tax domicile of a German citizen living in the Canton of Zurich and working in the Canton of Zug (appeal pending before the Federal Supreme Court); the mandatory citizen came from Germany to the Canton of Zurich in 2007 for professional reasons and lived in a 5.5 room apartment with his girlfriend, who followed him in the course of 2008. In calendar year 2009, he worked as CEO in the Canton of Zug, where he rented a room and registered as of March 2009. The Administrative Court had to examine whether the complainant's main tax domicile in the 2009 tax period was in the place of employment due to his managerial position. It denied this, as the premises rented at the place of work did not offer shower and cooking facilities and thus there was already a lack of suitable accommodation. It left open the question of whether the obligated person is considered a managerial employee in the sense of the Federal Court's case law. Rejection of the complaint.
VGr ZH, 11 March 2020, SB.2020.000003: Missing intention to make a profit a fashion boutique operator (this decision is legally binding); The obligated person has been operating a retail business in fashion retail since 2007. Initially the products were sold via an online shop; since 2013 the Pflichtige has had a physical fashion boutique. In 2007-2018, the company made only losses. The Administrative Court considered that the conclusion of the lower court, according to which the fashion business of the Pflichtige was a permanent loss-making activity, was unobjectionable. In particular, contrary to the opinion of the obligated parties, the opening of the physical fashion boutique did not mark the beginning of a new era in view of the loss-making period that the tax authorities had to accept, which is why it was not only in its fourth financial year in 2016. Dismissal of the united appeals.
VGr ZH, February 19, 2020, SB.2019.000112: Commercial real estate trading vs. private asset management (this decision is legally binding); the now 72-year-old compulsorily resident bought a plot of land in 2002 and 2009 and had an apartment building constructed on it. To date, he has sold two of these apartments, both at a loss; he transferred two further apartments to his children as part of a mixed donation. He did not claim the losses for tax purposes and has not been classified as a commercial real estate agent to date. In order to transfer his company to his son, he bought a commercial property from his company in 2005. He sold part of this property in 2015 to a long-term tenant and was assessed as a commercial property dealer as a result of this sale. The Administrative Court came to the conclusion that the short period of ownership of the two apartments sold at a loss and the frequency of the transactions did not support the conclusion that the property was used commercially. In addition, no commercial intent to make a profit could be deduced from the conduct of the obligor. On the other hand, it affirmed the creation of employment, which, however, was of little importance due to the low turnover, and the complainant's professional proximity. Overall, it did not recognise any activity aimed at acquisition. Approval of the complaint.