Overview of the tax law decisions of the Administrative Court of Zurich and the decisions of the Tax Appeal Court of Zurich published in November 2019.
Decisions of the Zurich Administrative Court (available at: Link):
- VGr ZH, 23 October 2019, SB.2019.00050; Patenkindabzug nach § 21 Abs. 1 lit. d ESchG (this decision is not yet final): X was a nephew of the deceased E, who bequeathed him a cash legate. The cantonal tax office denied him the godchild deduction. Although sponsorship does not require an act of baptism, the internal law of the religious community must, however, regulate the relationship between the godfather and the godchild and record the assumption of sponsorship; neither is the case with X. The Tax Appeal Court approved X's appeal, whereas the Cantonal Tax Office lodged an appeal with the Administrative Court. The Administrative Court did not consider the additional standardisation of the sponsorship relationship required by the cantonal tax office to be necessary. It borders on exaggerated formalism when the cantonal tax office demands that the godfather in the religious community must be listed with this function. Dismissal of the complaint lodged by the cantonal tax office.
- VGr ZH, 11 October 2019, SB.2019.00059; State and municipal taxes 2015; Employee participation/no proof of remuneration (this decision is not yet legally binding): The obligor received employee shares from his employer. The lower court (tax appeal court) came to the conclusion that the obligor received the shares from the employer both in kind and in the form of wages. In appeal proceedings before the Administrative Court, the ban on novenas applies. As a result, facts and evidence which have not been asserted, produced or brought before the tax appeal court at the latest in the proceedings before the tax appeal court may not, in principle, be adduced in the appeal proceedings. In the opinion of the Administrative Court, the documents submitted by the obligor for the first time in the appeal proceedings before the Administrative Court, with which he attempted to prove that he was paid, constitute inadmissible novenas and should not be taken into account. Furthermore, the applicant submits that the obligor did not put forward anything which would demonstrate a defect of title in the contested decision. Rejection of complaints.
- VGr ZH, 10 October 2019, SB.2019.00049; Inheritance Tax; Restoration of the Objection Period based on § 32 para. 2 sentence 3 ESchG (this decision is not yet legally binding): The obligated person received a cash legacy from the testator C. The cantonal tax office did not issue the assessment order for inheritance tax to the obligated, but to the husband of testator C, who was the sole heir. The obligor requested the administrative court to restore the time limit for lodging an appeal. The Administrative Court held that it had not been established that the person authorised to receive service (within the meaning of § 32 (2) sentence 2 ESchG) was at the same time the authorised representative (within the meaning of § 32 (2) sentence 1 ESchG) of the liable persons. Since the cantonal tax office proved neither the execution nor the time of service to the obligor, it assumed that the obligor had been unaware of the assessment order. The obligor could thus invoke § 32 (2) sentence 3 ESchG. The Administrative Court restored the time limit for appeal on the basis of that provision. Rejection of the complaint.
- VGr ZH, 2 October 2019, SB.2019.00025; State and municipal taxes 2014, qualification of a participation as business assets (appeal pending at the Federal Supreme Court): The obligor has received consulting fees and board of directors' fees of a German group through his sole proprietorship for years. Subsequently, the group granted him an atypical sub-participation in a limited liability company in which he held 100% of the shares. It is disputed whether the income from this sub-participation is part of the business assets and represents income from self-employment. The obligor has made a portion of the share capital and a one-off financial contribution to a loan to the GmbH. In the opinion of the Administrative Court, the equal treatment of the atypical sub-participation based on German law as a silent partnership is unobjectionable. The obligor had information and participation rights, which is why not only a loan exists. The obligor had drawn the attention of the German group to the will to sell of the former owner of the GmbH and had expressed his interest in the participation. There was a close relationship between the participation in the GmbH and his self-employment, which is why the Administrative Court protected the qualification of his share as business assets. It further stated that no further individual enterprise could be assumed to have a different registered office and that the allocation of the asset to business assets did not violate the principle of good faith, since the asset did not qualify as a private asset over an extended period of time. Rejection of the complaint.
Decisions of the Tax Appeal Court of Zurich (available under: Link):
- StRG ZH, 3 September 2019, DB.2018.146, ST.2018.172; blocking period regulation for BVG purchase (this decision is legally binding): The obligor made a purchase in the 2nd pillar in 2014 and received a capital benefit from the 2nd pillar on 1 December 2016. The tax appeal court considered that in the case of purchase contributions that were wrongly allowed to be deducted, the error had to be corrected in the after-tax procedure and not in the correction procedure (confirmation of DB.2016.137 / ST.2016.162). This led to the partial approval of the complaint (concerning the direct federal tax) and to the rejection into the after-tax procedure. The three-year blocking period provision of Art. 79b para. 3 BVG applies in principle without exception (except for repurchase after divorce pursuant to Art. 79b para. 4 BVG, where the deduction would nevertheless have to be refused in the event of tax avoidance pursuant to BGE 142 II 399). The tax appeal court refused the analogous application of the reversal practice to cash payments without sufficient reason within the meaning of Art. 5 para. 1 FZG requested by the obligor. Rejection of the appeal.
- StRG ZH, 30 July 2019, ST.2018.29; Valuation of unlisted ordinary shares of a Holding GmbH (this decision is legally binding): Valuation of unlisted ordinary shares of a Holding GmbH with a fiscal year from 1 July of one year to 30 June of the following year taking into account hidden reserves at a subsidiary operating company (asset management company) with a fiscal year corresponding to the calendar year. Better suitability of a goodwill multiple of assets under management for determining the fair value of an asset management company. For the determination of the hidden reserves on its investment in the subsidiary operating company, which is necessary in the context of the valuation of Holding GmbH, it is not possible to use data from the annual financial statements of the operating company for a financial year ending only six months after the date of the annual financial statements of the holding company. If the obligors have opted for such a structure, it is particularly forbidden to revoke the decision for a financial year of Holding GmbH ending during the year for mere valuation purposes by means of interim financial statements to be prepared each year at the end of a calendar year. Correction of the asset tax value, as the cantonal tax office erroneously assumed that the valuation for year n was less favourable for the obligors than the valuation for year n-1. It is not possible to prove to the obligors that the use of a goodwill multiple in the sense of a percentage of the assets under management leads to a better insight for the determination of the market value of an asset management company, as this is an industry-specific average value with a wide range. Partial approval of the appeal / rejection to the cantonal tax office for further investigation.
- StRG ZH, July 16, 2019, QS.2017.12; withholding tax, refund, international tax excretion according to DBA-D (this decision is legally binding): The obligor (resident in Germany) was employed by a Swiss employer until May 31, 2013. Between 1 January 2013 and 31 May 2013 he worked one day in Switzerland, 23 days in the USA and took 79 holidays. The cantonal tax office took the view that the Swiss working days were to be determined by subtracting the foreign working days and levied the withholding tax accordingly. As a result, the holidays (spent in Germany) were also subject to Swiss tax sovereignty. The mandatory was of the opinion that holidays spent outside Switzerland could not be regarded as Swiss working days. The Tax Appeal Court came to the conclusion that the quota solution applied by the German Federal Supreme Court to the DBA-D best corresponded to the purpose of the DBA-D. The court of appeal ruled that the DBA-D was the only solution that could be applied. It thus decided that the days of holiday should be divided in proportion to the number of working days in Switzerland and the USA (on a quota basis) and partially approved the recourse of the obligor.
