Overview of the tax law decisions of the Administrative Court of Zurich and the decisions of the Tax Appeal Court of Zurich, published in March/early April 2020
Decisions of the Zurich Administrative Court (available at: Link):
- VGr ZH, 23 January 2020, SB.2019.00077: Imputed rental value of a second home - this decision is legally binding In their 2016 tax return, the obligated parties declared, among other things, the imputed rental value of the single-family home they themselves live in. They declared neither a rental income nor an imputed rental value for the condominium they also own. It is disputed whether the cantonal tax office was right to offset the net imputed rental value. The Administrative Court ruled in favour of this, since own use is to be assumed even if the owner does not actually live in the house, but reserves the right to do so. The property in dispute had been available to the obligated parties at any time during the entire calendar year 2016; efforts to let the property were neither claimed nor documented. Rejection of the complaints.
- VGr ZH, 4 December 2019, SB.2019.00087: Wealth tax value of unlisted shares - appeal pending before the Federal Court. The obligated party was the sole owner and sole employee of B AG with registered office in C, canton D. The method by which the shares in B AG are to be valued is in dispute. In the course of the appeal procedure, the cantonal tax office held out the prospect of a valuation with only a one-off weighting of the capitalised earnings value, which the mandatory employee refused to accept. The obligated party applied to the Administrative Court for the sole consideration of the net asset value. The Administrative Court concluded that the strong personal connection between the company and the obligor as its only employee, as claimed by the obligor, had been sufficiently taken into account in the valuation of the shares held by the company. There were also no extraordinary circumstances which would require a valuation deviating from that in Kreisschreiben No. 28. Dismissal of the appeal.
- VGr ZH, 4 December 2019, SB.2019.00034: Tax sovereignty - place of actual administration abroad - this decision is final. The complainant, domiciled in the canton of Nidwalden, resulted from a spin-off from its sister company domiciled in the canton of Zurich. The Canton of Zurich claimed tax sovereignty over the complainant on the basis of personal or economic affiliation, since the seat in the Canton of Nidwalden was only of formal significance. The Administrative Court came to the conclusion that neither important business decisions are taken nor any other significant activities are carried out for the complainant in the canton of Nidwalden. In the Canton of Zurich, not only subordinate administrative matters were carried out, but a part of the complainant's added value was created there. What spoke against the place of actual administration in the canton of Zurich, however, was that all the threads of the executive management came together at the chairman of the board of directors, who was resident abroad and rarely stayed in Switzerland, which was why the place of actual administration was abroad. Thus, the mere formal Swiss domicile is not matched by a place of actual administration in another canton, with the consequence that the formal statutory domicile in the canton of Nidwalden is decisive for tax purposes. However, there is a permanent establishment in the canton of Zurich. Rejection.
Decisions of the Tax Appeal Court of Zurich (available under: Link):
- StRG ZH, 18 February 2020, ST.2018.265: Valuation of securities without market value - this decision is legally binding The obligated party is a shareholder of D AG. It is disputed whether the valuation of these shares in the disputed tax period 2015 may be based on the purchase price of a share buyback in 2005. Furthermore, the obligor claimed that the hidden reserves on the factory properties of D AG must not be taken into account in the valuation of the company value due to the risk of the threatened protection of historical monuments. The Tax Appeal Court considered that the change of ownership in 2005 could not be taken into account due to the lack of proximity to the valuation date and that the argument of the assumption of protection of historical monuments could not be heard because the threatened protection was not sufficiently substantiated. It concluded that the valuation carried out by the canton in which the D AG had its seat had been correctly carried out on the basis of circular letter no. 28. Rejection of the appeal.
- StRG ZH, 18 February 2020, ST.2017.257: Valuation of shares in a law firm - appeal pending at the VGer. The obligated persons are shareholders of a law firm. It is disputed how the shareholding is to be valued for wealth tax purposes. The cantonal tax office valued the shares in the disputed tax period 2014 using the practical method (single net asset value/double capitalised earnings value) in accordance with circular letter no. 28. The obligated parties argued, however, that the company depended on the personality of the owners and shareholders. As neither the partners nor the client base could be sold, the general formula for industrial and service companies was not applicable for calculating the market value of a law firm. The Tax Appeal Court considered the inclusion of the capitalized earnings value to be in accordance with the general, schematic regulation in the guidelines, which is to be applied according to case law and practice. Rejection of the appeal.
- StRG ZH, February 5, 2020, DB.2019.83: Delivery of the assessment ruling - this decision is legally binding. After an unsuccessful request and reminder to submit the tax return, the obligated party was assessed for direct federal tax 2016 according to the principles of due diligence in a ruling dated 4 October 2018 (served on 5 October 2018). About half a year later, the obligor filed an objection against the assessment decision, which was not complied with by the cantonal tax office due to delay. Before the Tax Appeal Court, the obligated party claimed that the cantonal tax office had to provide proof that the assessment ruling had been served and denied having signed the confirmation of receipt. For the Tax Appeal Court, there was no doubt that the 2016 assessment notice was delivered personally to the obligor on 5 October 2018, which means that the obligor's objection was late and that the cantonal tax office was right not to take action. Rejection of the appeal.
- StRG ZH, 30 January 2020, ST.2019.172/DB.2019.131: Property maintenance costs - this decision is legally binding The (first) creation of a legally sufficient house access as a development measure is considered a value-enhancing expenditure and not property maintenance. This does not change the fact that the existing illegal situation was tolerated for a long time by the former owner. The same applies to the court and legal costs incurred in this connection. Rejection of appeal and complaint.
- StRG ZH, 28 January 2020, ST.2019.147/DB.2019.114: hidden profit distribution; loan simulation - this decision is final. The obligor is the sole shareholder of C AG. As of 31 December 2016, she had a loan debt to C AG of approximately Fr. 440,000. The loan was granted for an indefinite period and without the provision of financial collateral. A tax authority outside the canton reported to the cantonal tax office excessive lump-sum expenses of Fr. 24,000 and a simulated loan of Fr. 444,214 from C AG, domiciled in that canton, to the obligor, which were not in dispute in the present case. On the basis of this report, the cantonal tax office made a set-off of approximately Fr. 470,000. The Tax Appeal Court concludes that the Cantonal Tax Office was right to qualify the loan as simulated. The objection of the obligated parties that the tax access should have taken place earlier could not be heard due to the lack of good faith. Dismissal of appeal and complaint.
- StRG ZH, 15 January 2020, QS.2019.11: Application for re-assessment of withholding tax in the event of intercantonal change of residence - this decision is legally binding The obligated person is a French citizen and has been living in the Canton of Zurich since 1 April 2016, previously living in the Canton of C. He submitted an application for the re-assessment of withholding tax in 2016 to the Cantonal Tax Office of Zurich, Service Department for Withholding Tax, requesting additional consideration or deduction of pillar 3a contributions and effective professional expenses. The cantonal tax office only granted him a pro rata-temporis refund for the period 1 April to 31 December 2016 and forwarded the application to the cantonal tax office of Canton C. The Tax Appeal Court concluded that the law provides for pro-rata-temporis taxation if the liable party does not reach the income threshold of the subsequent ordinary assessment. It thus confirmed that the cantonal tax office does not have to review the deductibility of professional extraction costs incurred prior to the move. Moreover, this regulation was in conformity with the Constitution and the State Treaty, since the obligated person was not in a situation comparable to Swiss citizens and was therefore not directly discriminated against. Rejection
