Current cases on intercantonal and international corporate tax law

Case 1: Mutual agreement procedure according to StADG

1. facts of the case

X CH AG is a Zug-based subsidiary of the X Group. In 2010, it acquired various goods from its Polish-based sister company, XPL Ltd, and sold them at a profit to third parties.

The sequence of events is as follows:

10.04.2012: Definitive assessment of X Schweiz AG for direct federal tax and cantonal and communal taxes Zug for the 2010 tax period.

15.01.2022: Offsetting of profits by the Polish tax authorities for XPL Ltd. in the 2010 tax period. Reason: The sale of the goods to X CH AG was made at too low a price.

20.03.2022: X CH AG requests the State Secretariat for International Financial Matters to initiate a mutual agreement procedure.

24.01.2024: Mutual agreement between Switzerland and Poland, according to which Switzerland is to avoid double taxation by increasing the purchase price at X CH AG by 20%.

Questions

1. In the present case, around 10 years have passed since the assessment of X CH Ltd. Can X CH AG still initiate a mutual agreement procedure at all, or is the tax administration of the Canton of Zug still obliged to implement the mutual agreement?
2. What is the procedure for implementing the Mutual Agreement in Switzerland?
3. After receipt of the request to initiate the mutual agreement procedure, it becomes apparent that the transfer price was obviously too low and that the companies involved were aware of this. In such cases, can the request to initiate the mutual agreement procedure be rejected or can the contracting states agree not to eliminate the double taxation?
4. Can costs be imposed on X CH AG for the implementation of the mutual agreement?
5. Is it compulsory to go through the mutual agreement procedure or can double taxation be eliminated in another way?

Case 2: Primary correction as a ground for revision in intercantonal relations

1. facts of the case

X ZG AG is a Zug-based subsidiary of the X Group. In 2010, it acquired various goods from its Zurich-based sister company, X ZH AG, and sold them at a profit to third parties. The purchase price granted by X ZH AG to X ZG AG was obviously too low and the two companies involved were aware of this.

The sequence of the following events is as follows:

10.04.2012: Definitive assessment of X ZG AG for direct federal tax and cantonal and communal taxes Zug for the 2010 tax period.

15.01.2022: Offsetting of profits by the Zurich tax authorities at X ZH AG in the 2010 tax period. Reason: The sale of the goods to X ZG AG was made at too low a price.

20.03.2022: X ZG AG requests the tax administration of the Canton of Zug to correct the assessment of 10.04.2012.

Questions

1. In which procedure could such a correction be made?
2. Is the canton of Zug obliged to comply with X ZG AG's request or can it reject it on the grounds of abusive conduct?
3. Does the fact that the assessment of X ZH AG only took place years later play a role here?

Case 3: Offsetting losses in the case of an intercantonal real estate company

1. facts of the case

Immo AG, headquartered in Bern, is a real estate company with investment properties in the cantons of Bern, Thurgau and Zurich.

It shows the following figures for the 2021 tax period:

The capital gains in the canton of Zurich were incurred in the municipality of L. The municipality of L recorded the capital gains with real estate gains tax. This municipality has recorded the capital gains with the real estate gains tax and takes the position that the other losses incurred in the canton of Zurich are to be assumed by the other cantons.

The Canton of Thurgau takes the position that, as a pure real estate canton, it does not have to share the loss incurred in the Canton of Zurich and taxes 200.

The canton of Bern transfers the net loss in the canton of Zurich of 50 proportionately to cantons TG (10) and BE (40) and taxes 760.

Questions

1. How is the tax segregation to be carried out?
2. Would the tax segregation be the same if it were not a real estate company but an investment fund with direct real estate ownership?

Case 4: Telework and business premises intercantonal

1. facts of the case

X GmbH is based in Basel and employs 10 management consultants, 7 of whom reside in Basel and 3 in Solothurn. The consultants work voluntarily one to three days per week in a home office. All employees have a permanent office at the head office in Basel. 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 head office in Basel. In addition, two assistants and the managing director work permanently at the headquarters of X GmbH.

Question

1. Does X GmbH establish a permanent establishment in Solothurn?

Case 5: Offsetting of services between sister companies

1. facts of the case

The A. AG, with its registered office in the canton of BL, is a private-law hospital for general practitioners with a free choice of doctors. It is the wholly-owned subsidiary of C. AG and sister of B. AG, both of which have their registered office in Canton V. B. AG has no staff of its own and the profit tax rate in Canton V is lower than that in Canton BL.

A. AG purchased services from B. AG for payroll administration, patient and financial accounting, statistics, medication administration and more. It paid CHF 725,420 for these services in 2014 and CHF 805,285 in 2015.

B. AG in turn obtained these services from E. AG, which is based in the canton of W. It paid CHF 136,990.30 for these services in 2014 and CHF 141,395 in 2015. B. AG's work was mainly carried out by E. AG. The latter invoiced B. AG, which passed the costs on to A. AG with a surcharge. AG with a surcharge.

B. AG achieved a margin of 740% in 2014 and over 1000% in 2015 with the sale of services to A. AG achieved a margin of 740% in 2014 and of more than 1000% in 2015, which according to the findings of fact were settled with one to two days of work by the board of directors Prof. K., whereby the latter waived a salary.

Due to the high margin of B. AG, the tax administration of the Canton BL assumed a hidden profit distribution of A AG to B. AG. It considered the application of the cost-plus method on the basis of full costs and with a cost mark-up of 10% to be the appropriate method.

A. AG, however, took the view that B. AG's purchase costs had nothing to do with the sales costs and that only the sales price was relevant with regard to a third-party comparison. It demanded the application of the price comparison method.

For this purpose, it submitted comparative offers from A. AG, which were obtained some years after the facts at issue here. These were to show that the prices paid by A. AG to B. AG were lower than in the comparable market.

After the BL cantonal court confirmed the tax authority's position, A. AG took the case to the Federal Supreme Court.

Questions

1. Can the tax authority claim tax avoidance in federal court?
2. Is there a hidden distribution of profits?
3. Can the tax authority demand an adjustment of the margin from 10% to 5% in federal court?
4. Is there intercantonal double taxation according to Art. 127 para. 3 BV?

Case 6: Old reserve practice and tax avoidance

1. facts of the case

The domestic A. AG was wholly owned by C. AG in 2005 and had a share capital of CHF 240,000. On 31 December 2004, A. AG held the entire share capital of three trust companies and also acquired a further four trust companies between 2005 and 2010.

D. AG, which has its registered office in Switzerland, pursued activities in the context of a trust company before it was deleted in 2012 following a merger with its sister company.

In March 2005, E (natural person), a resident of Paraguay, sold the domestic company D. AG for CHF 1.1 million to A. AG. It was agreed that D. AG would be continued for at least one year after the sale.

Balance sheets as at 31 December 2004:

In 2005, the turnover of D. AG was CHF 939,000, whereas from 2006 to 2008 it fell to CHF 691,000, CHF 509,000 and CHF 49,000 respectively. In 2009, it rose again to CHF 182,000, but personnel expenses had fallen to practically zero from 2007 to 2009, so that economic activity no longer really existed.

In 2011, D. AG then distributed a dividend in the amount of CHF 820,000, while the declared withholding tax amounted to CHF 287,105 and was reported to the FTA. The FTA refused to apply the reporting procedure on the grounds that D. AG had to pay CHF 222,661.00 (35% of D. AG's distributable reserves under commercial law of around CHF 636,174.00 from 2005) to the tax administration.

D. AG then paid the withholding tax of CHF 287,105 and A. AG demanded a refund. However, according to the FTA, the latter was not entitled to a full refund, but only for the remaining amount of CHF 64,444 (difference CHF 287,105 - CHF 222,661). The sale of the shares had resulted in the reserves being transferred to E free of withholding tax in the form of non-operating funds.

The FTA refused the refund, citing the principle of tax avoidance of Art. 21. para. 2 VStG.

Question

1. Is A. AG entitled to reclaim the dividend distributed by D. AG on the basis of Art. 21 para. 2 VStG?