Current cases on intercantonal and international corporate tax law (2023)
Workshop on intercantonal and international corporate tax law by René Matteotti and Philipp Betschart on the occasion of the ISIS seminar "Corporate Tax Law 2023" on June 19/20, 2023.
Case 1: Primary adjustment as a ground for revision for direct federal tax and state and municipal taxes (BGer 14.4.2022, 2C_597/2019)
The tax administration of the Canton T assessed B AG with a taxable net profit of CHF 256,000 (direct federal tax as well as state and municipal tax) for the tax year 2013 by increasing the declared net profit of CHF 59,000 by CHF 189,000. It added the amount of CHF 189,000 for the "depreciation of a nonvaluation", since B AG did not succeed in proving the investment costs "painting works", which were invoiced by A AG, in the amount of CHF 204,000. The Administrative Court of the Canton T with decision of 7 February 2017 and the Federal Supreme Court with decision of 7 September 2019 protected the approach of the tax administration.
On February 23, 2016, the tax office of Canton Z assessed A AG for direct federal tax and state and municipal taxes for 2014. This decision remained unchallenged and became final.
On June 12, 2017, A AG filed a revision request, arguing that an invoice of A AG had been qualified as a nonvaleur at B AG. As a result, the payment of B AG had to be treated as a hidden capital contribution at A AG. The tax office of Canton Z rejected the request for revision on the grounds that no new facts had been submitted by A AG, but that it referred to a legal assessment of another instance.
Is A AG entitled to a revision of the assessment dated February 23, 2016 regarding direct federal tax?
Case 2: Optimized German partnership
D, domiciled in Zurich, is, together with his three siblings domiciled in Germany, a limited partner of D GmbH & Co KG, a limited partnership established under German law.
The activity of D GmbH & Co KG consists exclusively in the management of the family assets inherited by D and his siblings (securities, no real estate). The company has no own staff and no office premises.
Pursuant to Sec. 1a of the German Corporate Income Tax Act, the Company has elected the corporate income tax option. In Germany, it is thus taxed like a corporation and its shareholders are taxed like participants in a corporation.
- How should D's participation in D GmbH & Co KG be treated for tax purposes under internal Swiss law?
- Do restrictions on taxation under internal law result from the applicable double taxation treaty?
- What are the tax consequences under internal law if D GmbH & Co KG makes a distribution?
- How should the distribution be treated under the applicable DTA?
- What are the consequences under internal law if D GmbH & Co KG has a shareholding in a Swiss corporation and the latter distributes a dividend?
- To what extent does the applicable double taxation treaty change the answer to question 5?
Case 3: US LLC: Update due to StRG, 3/29/2022, 2 DB.2020.14.
A and B live with their children D (born 2006), E (born 2013) and F (born 2015) in their own apartment in G. A is a "banker" or "bank employee" by profession and is employed 100% by Bank H in the city of Z and receives a net salary of CHF 275,000. B is a US citizen and founded five limited liability companies (LLCs) in 2013-2016, which were entered in the commercial register in the USA. Four of these five companies purchased 27 properties in the cities of O and P in the State of I in the USA in their own name in the years 2013-2016 and rented them out to third parties (private individuals).
The consolidated income statement and balance sheet of the five companies as of December 31, 2016 were as follows:
Income was generated exclusively from rental income. Expenses included depreciation, administrative costs, travel expenses as well as interest. A total of five local real estate management companies were responsible for the accounting, which sent the accountant V a monthly statement showing the costs and income of the respective properties. The accounting was approved by the company owner B in each case.
The five companies are exclusively liable themselves for any transactions and liabilities, which is also reflected in the designation "limited liability". For tax purposes, the LLCs are treated transparently in the USA, even if they conclude contracts or acquire property in their own name under the civil law system. Thus, they do not file their own tax return and do not owe corporate income taxes.
B declared and taxed the income and expenses related to the 27 properties in the USA in her personal tax return as if the companies were non-existent. B further claimed that the LLCs had an option to act as a separate legal entity within the meaning of the tax qualification. However, the LLCs had not made use of this option, so that they received the status "transparent" for tax purposes.
In July 2019, the cantonal tax office assessed A and B for the tax period 2016 with a taxable income of CHF 232,000 (direct federal tax) and CHF 224,000 (state and municipal tax), respectively, with taxable assets of CHF 0. The authority offset the incurred business loss of CHF 13,000 on the grounds that the LLCs were independent legal entities comparable to the GmbH. This means that only their distribution would be taxable for B, but it could not deduct the losses or debt interest of the LLCs.
Do the LLCs qualify as legal entities (GmbH) and is the deduction of the loss in the amount of CHF 13,000 to be granted?
Case 4: Third-party comparison and tax avoidance in offshore companies BGer 16.12.2022, 2C_907/2022
The taxable A. Ltd. is a stock corporation with its registered office in Geneva and has been entered in the Commercial Register since 1992. Its purpose is asset management, investment advice and the provision of all related services. B. is the sole shareholder and full-time employee of A. Ltd. as well as Chairman of the Board of Directors with sole signature of company D.
A. AG is the sole shareholder of the holding company C. with its registered office in Gibraltar, which holds 60% of the capital of the company D. with its registered office in the British Virgin Islands. A 25% share in Company D. is owned by Company E. from Gibraltar, which in turn is 78.125% owned by Company C.
Company D. in turn holds a 25% interest in Company H. in Bermuda.
D. has no operational infrastructure, personnel or other premises in the British Virgin Islands. It relies exclusively on external service providers. The amount of the annual premium for the professional liability insurance of the company D. amounts to USD 5,000 in the years in dispute. With its "in-house" funds and the funds entrusted to the company H., it generated profits in the amount of USD 11,638,204.97 in 2007 and USD 5,8680451.20 in 2008.
A. AG appoints its shareholder, managing director and full-time employee B. to the Board of Directors of the company D., whom it pays alone. B. sits together with G. (another shareholder of the company D.) in the investment committee, which systematically follows the strategic decisions proposed by the BoD. He is also a member of the investment committee of company H. A. Ltd paid B. an annual salary of CHF 699,999.60 in 2007 and CHF 600,6810.15 in 2008.
The tax administration of the Canton of Geneva attributed 79.53% of the profit generated by the company D. to A. AG because A. AG waived compensation for the employee B. it had loaned to the company D.
Was the tax administration of the Canton of Geneva allowed to offset the 79.53% of the profits of the company D. domiciled in the BVI with A AG?
Case 5: Intercantonal Aspects of the OECD Minimum Tax
The M-Group is a multinational group with annual sales of CHF 2 billion. In Switzerland, the Group's parent company MM is located in Canton A with operating facilities in Cantons B and C, and the subsidiary MT is located in Canton D.
For the tax period 2024, the M Group in Switzerland reports the following figures:
- How is the supplementary tax owed in Switzerland calculated and how is the supplementary tax distributed among the participating cantons and the federal government?
- Which authority is responsible for the assessment of the supplementary tax?
- Which authority is responsible for the receipt and distribution of the supplementary tax?
- What legal remedies can be taken by the affected Group companies, the federal government and the cantons involved against the assessment and distribution?