Current cases on intercantonal and international corporate tax law (2021)

Case 1: Main tax domicile with mobile business activity I

Facts

X AG provides services in the area of programming and further development of customer-specific IT applications. The sole shareholder, chairman of the board of directors and sole employee is X.

X AG has its registered office in Lucerne. At its registered office, it has the option of booking office space and meeting rooms by the hour. X AG makes use of this possibility once or twice a month.

X AG mainly provides its services directly to its customers in various cantons and abroad.

X is resident in Bülach ZH. He has a workplace at his place of residence, which he regularly uses both for his work for X AG and privately. Meetings with clients take place at the clients' premises, occasionally at the registered office of X AG, but not at X's place of residence.

Question

Where is the main tax domicile of X AG?

Case 2: Main tax domicile for mobile business activity II

Facts

X AG (cf. facts of case 1) receives more and more orders. X therefore takes Y into the company. Y takes over 45% of the shares in X AG and joins the board of directors. X remains chairman of the board of directors. Y is resident in the canton of Aargau. X and Y are the only two employees of X AG.

Like X, Y also works mainly for X AG's customers abroad and in various cantons. Y also has a workplace at his place of residence in the canton of Aargau from which he carries out work for X AG.

Board meetings and internal company meetings are held decentrally by X and Y (at the current place of employment or near the residence of X or Y, but not at the company's registered office in Lucerne).

Question

Where is the main tax domicile of X AG?

Case 3: Main tax domicile for mobile business activity III

Facts

A Ltd. has its registered office in Cyprus. It provides consultancy services in its specialised field to its clients worldwide. The sole shareholder and employee of A Ltd. is A, a resident of the Canton of Schaffhausen, who is also the managing director of A Ltd.

A does not need any special infrastructure for his work. Essentially, a laptop and a mobile phone are enough for him. A spends about 10 months a year abroad (in different countries and depending on the duration of the projects he supervises). He spends the remaining 2 months at his place of residence, to which he returns at least every two months. A carries out the work necessary for the management of A Ltd. on an ongoing basis, i.e. on site during his assignments or at his place of residence in Switzerland. A Ltd. does not have any infrastructure in Cyprus.

Question

Is A Ltd. subject to unlimited tax liability in Switzerland?

Case 4: Home office and permanent establishment internationally

Facts

X GmbH is based in Freiburg (Germany) and employs around 20 management consultants, three of whom reside in Basel. The consultants work voluntarily one to three days per week in a home office. All employees have a permanent office at the company headquarters in Freiburg. No client meetings take place in the home offices.

Variant on the facts of the case: According to the employment contract, all consultants of X GmbH work mainly in a home office. For the rental costs of the home office, the consultants are compensated by their employer with a lump sum. In addition to three meeting rooms (where all client meetings take place), three workstations can be reserved and used by the consultants on a daily basis at the company headquarters in Freiburg (Germany). In addition, two assistants and the managing director work permanently at the headquarters of X GmbH.

Question

Does X GmbH establish a permanent establishment in Switzerland?

Case 5: Home office and permanent establishment intercantonal

Facts

Same facts as in case 4, with the following adjustments: The registered office of X GmbH is in Basel. All advisors are resident in Switzerland, three of them in the canton of Baselland and two in the canton of Solothurn.

Question

Does X GmbH establish permanent establishments in the cantons of Baselland and Solothurn?

Case 6: Tax segregation for foreign permanent establishments

Facts

NL GmbH, with its registered office in the canton of Zurich, carries out a large part of its business activities through an operating facility located in India.

Tax period 2019: NL GmbH calculated the profit for direct federal tax in its 2019 tax return as follows: 50% of the costs incurred in Switzerland.

Tax period 2020: According to permanent establishment accounting, the following results arose at the head office and the permanent establishment in the tax period 2020:

Tax period 2021: According to permanent establishment accounting, the following results arose at the head office and the permanent establishment in the tax period 2021:

India provides for loss carry forward of 8 years for non-resident companies.

Questions

• Is the profit calculation claimed by NL GmbH for 2019 correct for direct federal tax?
• What is the 2020 taxable profit for direct federal tax and for Zurich state and municipal taxes?
• How high is the taxable profit in 2021 for direct federal tax and for Zurich state and municipal taxes?

Case 7: Old reserve practice and treaty abuse

Facts

C S.p.A. has its registered office in Italy and holds E BV. in the Netherlands and B Ltd. with its registered office in Ireland. B Ltd. in turn has a subsidiary, A Ltd, also domiciled in Ireland. F AG, with its registered office in Zurich, was a subsidiary of E BV until 2005. In 2005, A Ltd. took over F AG and has been the sole owner of F AG since 2006.

In the years 1999 to 2003, F AG distributed several dividends. E BV applied for a refund of withholding tax on these dividends on the basis of the double taxation agreement concluded between Switzerland and the Netherlands. However, the FTA only refunded up to the residual rate of 15%, arguing that E BV had purchased the Swiss participation from a company in the Netherlands Antilles without any economically motivated connection.

In 2007, F AG distributed a dividend of CHF 14 million to its new Irish resident parent company A Ltd. Due to the fact that the deadline for the reporting procedure was missed, the withholding tax of CHF 4.9 million had to be paid to the FTA. Based on Art. 9 para. 1 of the former AEOI (now Art. 15 para. 1 AEOI-EU), A Ltd demanded a full refund of the withholding tax.

Question

Is A Ltd. entitled to reclaim the dividends distributed by F AG?

Case 8: Old reserve practice and tax avoidance

Facts

A. has been pursuing expansion in the fiduciary sector for several years by acquiring corresponding active companies, whereby A already has three companies in the fiduciary sector. As a result of its expansion plans, A acquired B, which operates in the fiduciary sector, from D., a foreign seller, in January 2014 for CHF 1 million and undertakes to continue B's business activities until the end of 2019. A. also intends to make further investments with B's funds. At the time of the sale of the participation, B had CHF 800,000 in reserves, CHF 700,000 of which were distributable under commercial law.

As of 1 January 2020, more than five years after the sale of the participation, B made a distribution of assets in the amount of CHF 800,000, for which A filed an application for an offsetting refund with the FTA.

Question

Is A entitled to reclaim the dividends distributed by B on the basis of Art. 21 para. 2 ITA?

Case 9: Factual and vicarious liquidation

Facts

The sole shareholder of the Swiss real estate company X AG, domiciled in the Cayman Islands, sells his shareholdings to the Swiss company Y AG for CHF 3 million as of 1 January 2017. AG sells its almost sole asset, a property with a book value of CHF 6 million, to a third party for CHF 12 million.

As of 1.1.2020, X. AG will distribute the sales proceeds of CHF 6 million to Y. AG. X AG applied to the FTA to fulfil its withholding tax obligation by way of the notification procedure.

Questions

• Will the FTA grant the reporting procedure?
• Does X AG owe withholding tax on the liquidation profit distributed?
• Can Y AG claim a refund of the withholding tax?