Overview of the tax law decisions of the Administrative Court of Zurich and the decisions of the Tax Appeal Court of Zurich published in April and May 2020.

Decisions of the Zurich Administrative Court (available at: Link):

  • VGr ZH, 8 January 2020, SB.2019.00090: Wealth tax exemption on the acquisition of real estate abroad (appeal pending before the Federal Supreme Court): In 2016, the obligated parties were subject to unlimited tax liability in the Canton of Zurich. In the course of 2016 they acquired a property abroad. The cantonal tax office has allocated the property tax value of the foreign property abroad for the period from acquisition to 31 December 2016 and has assigned it to the Canton of Zurich for taxation for the period from 1 January 2016 to the acquisition of the foreign property. The issue in dispute is whether the pro rata temporis weighting of the wealth tax between the canton of residence and the canton of real estate, which is to be carried out on an intercantonal basis on the basis of Art. 4b para. 2 StHG (so-called weighting method), also applies internationally. In the opinion of the Administrative Court, § 5 para. 3 StG in conjunction with § 10 para. 3 StG and Art. 4b para. 2 StHG provide a legal basis for the application of the weighting method in an international relationship. Approval of the appeal.
  • VGrZH, 18 December 2019, SB.2017.00152: Real estate gains tax (appeal due to intercantonal double taxation) (appeal pending at the Federal Supreme Court): The obligated party is an extra-cantonal real estate dealer and has sold an investment property in the canton of Zurich. As such, she was entitled to the option of claiming the tax expense as an expense in the real estate gains tax. It charged this to the income statement. Subsequently, the entire net profit was relinquished to the Canton of Zurich for taxation. The obligated party filed an appeal for a reduction of the legally assessed real estate gains due to the existence of intercantonal double taxation. It is disputed whether there is an impermissible intercantonal double taxation and whether in the case of an obvious intercantonal double taxation, as postulated in case law and literature, an appeal should be allowed based on Art. 127 para. 3 BV. The Administrative Court considered that it was not necessary to conclusively assess whether a ground for appeal based on Art. 127 para. 3 BV should be accepted. The existence of intercantonal double taxation was disputed in the present case. There could therefore be no question of an obvious inter-cantonal double taxation. To the extent that the parties have the right to appeal to the Federal Supreme Court (ordinary appeal) in public law matters against the tax assessment of the last canton in order to clarify the disputed intercantonal double taxation, it seems advisable, at least in controversial cases, to first go through the appeals process to the Federal Supreme Court and not to allow a direct ground for appeal. Only losses incurred in the Canton of Zurich would be up for discussion, which is why the facts of the case are purely internal to the Canton and the federal rules on avoiding intercantonal double taxation do not apply. Rejection of the appeal.
  • VGr ZH, 8 January 2020, SB.2019.00094: Tax residence for outpatient medical treatment in Switzerland (complaint pending before the Federal Court of Justice): The compulsory resident of Zurich deregistered in 2006 and then lived on a Caribbean island. Due to real estate ownership, he continued to have a limited tax liability in the canton of Zurich. In 2014, he received medical treatment in Switzerland, mainly on an outpatient basis, mainly in his condominium in Zurich, which he had previously occupied himself. The Administrative Court considered that out-patient treatment was not covered by the exception under Art. 3 para. 4 DBG and that the person subject to the obligation had a more intensive connection to his Zurich residence than the alleged special purpose. It affirmed the tax residence. Rejection of the complaints.

Decisions of the Tax Appeal Court of Zurich (available under: Link):

  • StRG ZH, 10 March 2020, DB.2019.94: Repayment of share capital to the sole shareholder of the absorbed company (this decision is final): The obligor was the sole owner of D AG (share capital of Fr. 200,000) and E AG (share capital of Fr. 100,000). E AG absorbed D AG without a capital increase taking place and instead the share capital of E AG of CHF 100,000 was credited to the loan account of the obligor with D AG. The cantonal tax office counted this as a hidden pecuniary benefit. The Tax Appeal Court came to the conclusion that this was a repayment of the share capital of the company that had ceased to exist in the course of the merger, which was tax-exempt. This was not affected by the fact that the amount in question had not been booked in the special account for reserves from capital contributions required by Circular 29a of the FTA. On the one hand, this was not a repayment of a capital contribution, but of the share capital. In addition, it would be going too far to consider the statement via the special account as a prerequisite if, as in this case, proof of previous share capital could also be provided in another way. Appeal and appeal upheld.
  • StRG ZH, 10 March 2020, DB.2019.59: Private withdrawals of real estate from an independent real estate dealer (this decision is legally binding): The obligated person had been qualified as a commercial real estate dealer before 2007. In 2007 and 2008, he and his wife purchased various properties, which they transferred to their children in 2015. It had to be checked whether the purchases in 2007 and 2008 were also made in the context of commercial property trading and whether the transfer to the children was a private withdrawal. The Tax Appeal Court affirmed this, although the obligated persons were already 68 and 63 years old respectively. However, it referred the matter back to the cantonal tax office for the determination of the market value of the withdrawn properties.
  • StRG ZH, 9 March 2020, ST.2019.148:/DB.2019.115: Self-employment vs. hobby (this decision is legally binding): A retired, well-heeled compulsory citizen has been running a garage business in municipality X since 2011. Previously, he operated a second-hand garage business in the municipality of Y. In a first step, the Tax Appeal Court examined whether a new business was started with the garage business. It affirmed this. Particularly due to the considerable losses (2011 to 2017 about CHF 1.3 million), the obligated party was unable to prove that it was profit-making. The Tax Appeal Court denied the self-employment and thus also the offsetting of the loss (from hobby activities) against other income. Rejection of appeal and complaint.
  • StRG ZH, January 7, 2020, ST.2019.192: Intercantonal tax separation of pension fund purchase (this decision is legally binding): Self-employed persons with a residence outside the canton of Zurich convert their sole proprietorship with place of business in the canton of Zurich into a public limited company with registered office in the canton of Zurich during the tax period. Thereafter, ereiner purchases pension funds. During the period of self-employment, the obligated person was not affiliated to a pension fund. The cantonal tax office allocated the entire purchase to the canton of residence, whereas in this canton of residence a different decision has already been made with legal effect (distribution of the purchase according to the income shares of both cantons). The obligated parties acknowledge the opinion of the Canton of Zurich. The proceedings were only instituted in order to go through the cantonal courts of appeal so that they could assert a violation of the double taxation prohibition before the Federal Supreme Court. The concurring motions lead to the dismissal of the appeal.
  • StRG ZH, 4 December 2019, ST.2019.80/DB.2019.60: Maintenance payments to ex-wife and child deduction for children of full age (this decision is legally binding): The obligated person has not provided evidence that the payment to his ex-wife served to cover the current living requirements of the ex-wife. In addition, child deductions were claimed for two children of full age studying abroad. The requirements for the child deduction were not met because the maintenance was not disputed by the debtor in the main proceedings (state tax). The threshold value at which it is assumed that the support is disputed as to the main issue was not reached, whereas the obligor is entitled to the support deduction for both children in the case of state tax. Reason: The payments reach the necessary threshold value for state tax. In the case of federal tax, the older daughter reaches the threshold value for the child deduction. The younger daughter does not reach the threshold value in this respect. As a result, the insurance premium deduction has been increased in some cases ex officio. Partial approval.
  • StRG ZH, 3 December 2019, GR.2019.29: Real estate profit tax (revision) (this decision is final): The obligated party sold a property in 2015, on which a real estate profit tax was levied. In September 2018, she filed a request for revision due to subsequent replacement. It is disputed whether there is a causal connection between the property sold in 2015 and the purchase of the condominium three years later. The Tax Appeal Court denied this, in particular because the obligated party could only show a few purchase efforts. Rejection of the appeal.
  • StRGZH, 2 December 2019, ST.2019.10: Deduction of car costs as professional expenses (this decision is final): The obligor works as a self-employed emergency physician in the Zurich area. He did not comply with a requirement to prove the car expenses of Fr. 29,754 that he had deducted, whereupon the cantonal tax office estimated them at Fr. 14,754 at its discretion. The Tax Appeals Court considered the estimate of the Cantonal Tax Office not to be obviously incorrect. Dismissal of appeal and complaint.
  • StRG ZH, 28 November 2019, DB.2019.102/ST.2019.132: Separate assessment of the spouses despite resumption of the joint household post-court separation (this decision is legally binding): The spouses were judicially separated in November 2009 In order to ensure childcare, the husband temporarily moved back into the marital home in 2016. While the spouses were assessed separately in 2016, a joint assessment was made in 2017. The Tax Appeal Court recognised the present exceptional situation and protected the separate assessment of the spouses in the disputed tax period 2017. Approval of appeal and complaint.
  • StRG ZH, 28 November 2019, GR.2019.1: Qualification as a real estate agent for additional deductions (this decision is legally binding): The obligor, newly founded in February 2013, purchased a property in March 2013 which she sold again in the same month. It is disputed whether the mandatory qualifies as a property dealer and as such can claim additional deductions. The Tax Appeal Court denies this, as the sale was not planned but was carried out at a random opportunity and, moreover, due to the circumstances, no intention to make a profit was apparent. The deduction of a brokerage fee was also disputed. Since the obligated party was already aware of the sales interest or the purchase interest of the later counterparties through the offers submitted, the Tax Appeal Court denied the existence of brokerage. Rejection of the appeal.
  • StRG ZH, 15 November 2019, ST.2019.56/DB.2019.38: Repayment of unjustly received maintenance contributions (this decision is final and absolute): In the 2016 tax period, the obligated party claimed a deduction for a repayment of maintenance amounts unjustly received from the ex-husband in 2013. The repayments do not qualify as maintenance contributions. The Tax Appeal Court concluded that, due to the specific circumstances, the repayment obligation should already have been asserted in the assessment / appraisal or related appeal proceedings concerning the 2013 tax period or later in appeal proceedings concerning the 2013 tax period and not only in the 2016 tax period. Rejection of appeal and complaint.
Tax topics covered in this post:
Income Tax
Property Gains Tax