Canton of Zurich: Real estate gains tax
Real estate gains of Zurich companies are now also fully subject to real estate gains tax even if these companies report losses from their business activities in the Canton of Zurich. In contrast, companies outside the canton can offset their business losses against gains on real estate in the canton of Zurich. This unequal treatment is to be eliminated. According to the proposal, on which Zurich voters will vote on 10 June 2018, Zurich companies will also be able to deduct the business loss from the property gains they have made in the Canton of Zurich. This offsetting of business loss against property gain reduces the taxable property gain and thus the property gains tax due. If the business loss is greater than the real estate profit, the real estate profit tax is not applicable at all.
All other cantons allow the offsetting of business losses against real estate gains, thus taking into account the overall economic performance of the company. In 2004, the Federal Supreme Court ruled that in the case of intercantonal companies, the economic capacity of all cantons must also be taken into account when taxing real estate gains. Accordingly, since 2004, intercantonal companies have been able to offset business losses against real estate gains earned in the Canton of Zurich. As a result, Zurich companies are now at a disadvantage compared to companies that are taxable in several cantons. The Administrative Court ruled in 2010 that this discrimination is unconstitutional. It called on parliament to eliminate the unequal treatment of companies within and outside the canton. However, according to the Federal Supreme Court, the cantons are not obliged to treat intra-cantonal companies in the same way as inter-cantonal companies.
The income from the real estate profit tax is solely attributable to the political municipalities. The effects of the change in the law will depend on how many companies with business losses sell real estate in the future, what profits they make and the extent to which business losses are incurred. The effects will therefore vary from municipality to municipality and from year to year. Based on calculations in a representative selection of municipalities, the average annual tax loss for all municipalities in the Canton of Zurich is approximately CHF 4 to 5 million. In the city of Zurich, for example, there would have been tax losses of around CHF 44 million in 2012 if the change in the law had already been in force at that time. However, this would only have been the case because several companies with high business losses sold properties on an exceptionally large scale this year. In contrast, surveys of eight representative municipalities over the years 2008 to 2012 show that in normal years the losses range from zero to a few per mille of the real estate gains tax income of the municipalities concerned. They are thus far less than the normal fluctuations that occur from year to year for this tax. This means that the expected losses of tax revenue for the municipalities can be absorbed by weighing up the resulting equal treatment of companies and the elimination of locational disadvantages.
Opponents criticize that the tax losses associated with the change in the law would be played down. They would probably be significantly higher than the CHF 4 to 5 million per year that the government council had calculated in a negligently optimistic way at the beginning of 2015. The result would be savings measures at the expense of the entire population. However, the change in the tax law is also not objectively justified. On the one hand, the Canton of Zurich is on a par with the large business cantons in terms of corporate taxation, and even performs very well internationally. Many companies, including well-known ones, have set up shop in the canton of Zurich. On the other hand, the Corporate Tax Reform III (USR III) was clearly rejected at the ballot box on 12 February 2017. The new federal bill, the so-called Tax Bill 17, is currently being drafted. It provides for a reduction in taxes for legal entities and will result in high tax losses for the canton and municipalities. As long as tax bill 17 has not been passed, there is no point in rashly changing the tax law in favour of companies. The present revision favours large banks and real estate companies in particular. New tax loopholes in real estate gains tax harm the municipalities and only benefit very few. If savings were to be made as a result, the entire population would suffer, but especially families and the less privileged. The change in the law also creates a new injustice: private individuals would have to pay tax on any property gains in addition to their income, while companies would now have the possibility of offsetting negative business results against property gains tax. This is unfair and should be rejected.
Canton of Zurich, cantonal referendum, 10.6.2018, offsetting of business losses against real estate gains tax.