Current problems of taxation of partnerships (2018)

Case 1: Real estate agent / profit sharing right

Facts:

A acquired from his father, by contract of assignment dated 8 September 1987, the agricultural home X with various plots of land at the productive value. A right to profit sharing for the siblings for a period of 25 years was agreed upon.

Subsequently, various plots of land were zoned. By agreement dated 29 November 2006, A and his siblings set the relevant profit at CHF 5,650,000. The latest payment date agreed was 1 May 2013. It was further stated that A would assume all taxes which would be levied by the seller in connection with the sold building plots.

In 2012, A - in addition to his profession as a farmer - constituted himself as a real estate agent, whereby the building land as well as the expenses for the development and buy-out of the siblings were entered in the balance sheet (capitalised).

Following the sale of the first plot of building land (December 2012), the share of the siblings' profit participation attributable to this land (CHF 108,100) was charged to the income statement as an expense and the capitalised amount of the profit participation was written off to this extent.

Question:

Tax assessment?

Case 2: Commercial lending

Facts:

X. (residence Kt. Schwyz) was a former entrepreneur of the globally active A. Group. At the end of 2008, his taxable assets amounted to approximately CHF 86 million. For several years, X. has made part of his assets available to various companies and private individuals as loans.

At the end of 2008, X. declared in his securities register around 50 loans with a total loan amount of over CHF 30 million. A few were capitalized in the balance sheet of the sole proprietorship, A. Consulting, which is not entered in the commercial register. Losses had already been claimed for this.

However, the tax authorities of Kt. Schwyz allocated all loans to his private assets. The self-employment claimed by X. was not recognised in the past, or only to a limited extent.

In 2008, in addition to interest income from the loans of approximately CHF 1.5 million, X. declared a loss of approximately CHF 500,000 from A. Consulting.

In the 2008 financial statements, expenses included, among other things, a write-off or value adjustment of around CHF 690,000 on the receivable of the individual company booked in 2007 as a loan against Amusement Park B (relating to the whitewater and roller coaster).

X. has been paying invoices for a white-water ride and a roller coaster of an amusement park B since 2005. In 2007, a loan of CHF 3,583,879.01 to the amusement park B. was capitalised, which was subsequently transferred to property, plant and equipment in 2008 with the following amounts:

The depreciation of CHF 690'000 resulted from write-offs of more than 20% on the whitewater and roller coaster:

The tax authorities offset a number of items in the 2008 assessment, such as private expenses charged to the income statement and the write-off of CHF 690,000. According to the assessment, taxable income from self-employment was approximately CHF 144,000.

In addition, the tax office stated that X. had not acquired ownership of the whitewater course and the roller coaster simply because he had paid invoices for investments in these facilities. The agreement concluded in November 2009 with the amusement park B. regarding the compensation for the provision of the white-water ride and roller coaster can at best be regarded as the granting of a right of use. There is, however, no economic link between the amusement park and the business activity as a consultant. The appeal proceedings confirmed, among other things, the non-deductibility of the CHF 690,000.

In the Administrative Court, X. argued that the granting of the loans in itself constituted self-employment, regardless of whether the loans had been included in the balance sheet of A. Consulting. The financing of the whitewater and roller coaster as well as the other loans showed that it was not just a matter of private asset management.

Question:

Can X. claim the write-off of CHF 690,000 as expenditure justified by business reasons?

Case 3: Building land in agriculture

Facts:

Farmer Z sold property parcel Y on December 16, 2013, which is located at a 27.58 a in the construction zone and a 16.03 a in the agricultural zone. The part lying in the building zone was then built over. The sale resulted in a book profit of CHF 700,000.

Question:

Taxable or tax-free capital gain according to Art. 18 para. 4 DBG?

Facts and circumstances II:

Farmer A had given up self-employment in 2000 and leased the plots individually. With a reversal, he declared the leased land, which is all located in the agricultural zone, to continue to be business assets. These plots no longer constitute an agricultural industry.

In 2014 farmer A applies to the tax authorities for the transfer of the agricultural land into private property. One of the plots only has 24 ares.

Question:

Taxable or tax-free capital gain according to Art. 18 para. 4 DBG?

Facts and circumstances III:

On 31 December 2011, farmer M transferred the book value of the overbuilt land in the construction zone from business to private assets. In the 2011 tax return, he declared the accumulated depreciation of CHF 10,000 as transfer profit.

For the agricultural holding 0,9 standard workers are required.

The assessment authority takes the view that the transferred property does not belong to an agricultural trade in the meaning of the rural land law, which is why a transfer gain of CHF 340,000 is to be offset.

Question:

How would you judge?

Case 4: Restructuring, firstly: 'partial conversion' of a general partnership into a limited liability company

Facts:

X. (born 1946, resident in the canton of Zurich) is the third generation to run a horticultural company with an affiliated flower shop and a nursery in the legal form of a general partnership. The general partnership A. has been entered in the commercial register since 1973, and since 2009 Y., the wife of X., and Z., their joint son, have also been entered as partners.

At the end of 2011, X. and Z. founded Gartenbau GmbH (GB GmbH) with headquarters at their residential and company headquarters. In 2012 the general partnership A. transferred the horticultural business unit - specifically the horticultural inventory - to GB GmbH at book value. The flower shop and nursery remained with the general partnership A. The only document relating to this sale is an invoice from the general partnership A. to GB GmbH, whereby the former invoices CHF 24,100 for the nursery inventory. GB GmbH paid the invoice.

In the course of a tax office audit for the 2012 tax period, the Zurich cantonal tax office concluded that the invoice submitted constituted a purchase agreement under civil law in accordance with Art. 184 ff. of the Swiss Code of Obligations and not a transfer of assets in accordance with Art. 69 ff. of the Swiss Code of Obligations. Merger Act. Only in the latter case was the transfer at income tax values legally permissible. A sale must "in principle always" take place at market value. CHF 24'100 is not the market value of the horticultural inventory. Its fair value has been estimated on a discretionary basis at CHF 150'000. The difference of CHF 125,900 was offset as income for the shareholders.

Question:

X. wonders why the sale of the horticultural inventory to the GB GmbH, which he and his son held and continued to run, which took place in the context of the generation change, should lead to income tax consequences.

Case 5: Restructuring second: Private withdrawal of the remaining assets after a transfer of the business of a sole proprietorship to a stock corporation

Facts:

X. (negoti. with Y.) is the owner of the sole proprietorship "X. Sport" with headquarters in A., Kt. Schwyz. X. Sport has been entered in the commercial register since 1985. Its purpose is the development, production and distribution of roller skis and sporting goods as well as trading in goods of all kinds. The financial year ends on 30 June of each year.

X. founded Z. AG with registered office in A. in September 2010 with a share capital of CHF 100,000, which was fully paid up in cash. Purpose of the Z. AG is the trade and distribution of bicycles, spare parts and sportswear and articles in general. X. holds 100% of the shares in his private assets.

Z. AG acquired from X. the mobile business assets of X. Sports, including all inventory, machines/appliances, operating equipment, tools, embroidery machines and office furniture, at book value. The purchase price was paid to the current account of X. in the Z. AG is credited.

Three condominium ownership units remained in the sole proprietorship. One unit would continue to be rented out as a bar/restaurant to third parties, the other two units, which are owned by X. Sport, which previously served as business and workshop premises and for embroidery, were rented to Z. AG from 1 January 2011.

The 2010 tax assessment decree recognises the tax-neutral transfer of the mobile business assets, but claims a tax-neutral profit statement (private withdrawal) as of 31 December 2010 for the remaining three condominium units. The letting of the three properties constituted private asset management - there was no commercial property trading.

The assessment ruling sets off reintroduced depreciation of CHF 977,225 for the purposes of the Schwyz state and municipal taxes and the direct federal tax on the three condominium units. In the assessment ruling concerning direct federal tax, a capital gain of CHF 436,775 is offset. The figures are determined by the assessment authority on the basis of a "factual closing balance sheet" as at 31 December 2010.

X. and Y. claim in the appeal proceedings that X. Sport had not prepared any business financial statements as of December 31, 2010, as its business activities had not yet ended, X. Sport continued to keep accounts, remained registered in the Commercial Register, then generated revenues on a subordinate level and the three properties remained capitalized in the accounts. There had been no clearly recognizable expression of will on the part of X. for the tax authority to make a private withdrawal.

Question:

Does a tax system profit statement apply to the three remaining condominium ownership units, so that they must be withdrawn privately for tax purposes?

Case 6: Self-employed person with 2nd pillar

Facts:

Markus Berger was a self-employed doctor. Until 31 December 2010, he was affiliated with Pension Fund X. On 1 January 2011, his accumulated balance of CHF 550,000 was transferred to a vested benefits account with Swisscanto. On the same day he joined the PAT BVG pension fund. PAT BVG confirmed purchases of CHF 150,000 for 2014 and CHF 200,000 for 2015, which were deducted from taxable income in the 2014 and 2015 tax periods.

As of December 31, 2016, the pension was retired from PAT BVG and as of January 1, 2017, a retirement pension was drawn. On 9 January 2017, he withdrew the vested benefit credit with Swisscanto in the amount of CHF 563,300.

Questions:

1. In retrospect, it is known that the purchase of CHF 150,000 confirmed by PAT BVG in 2014 was made on 17 December 2013 (with value date 1.1.2014). Possible tax consequences?
2. Do the cessation of self-employment and the withdrawal of capital have any effects on previous investments?

Case 7: Allocation of an alternative asset to business or personal assets - contribution of loss seems to be made to a limited partnership

Facts:

X. is general partner of the limited partnership Y. and manages its business. Y. has been based in Glarus North since April 2011, before that it was in Canton Schwyz. According to the entry in the Commercial Register, the purpose of the limited partnership is the management of assets, real estate and maintenance work on real estate.

On 21 January 2013, X. declared a net profit of CHF 45,950 for Y. in 2011 and net assets (cantonal tax value) of CHF 399,388.

On 24 January 2013, the tax administration of the Canton of St. Gallen notified the tax administration of the Canton of Glarus that the net assets of Y. contained four loss certificates, which X. had contributed as a capital contribution.

In the final assessments for direct federal tax and Glarus state and municipal taxes for 2011, which were opened on 23 May 2014, the assessing authority qualified two of the four loss certificates, which had been entered with a book value of Y. of CHF 50,000 each, as private assets for tax purposes. Y has to derecognise CHF 100,000 tax-neutral. The loss certificates must be declared in the private securities register. There was no connection between the two loss certificates and the activities of the limited partnership Y. Their purpose does not include the collection of the two claims.

One of the two loss certificates results from a loan claim of X. against a third party A. for CHF 55,000, which had been increased from CHF 30,000 to CHF 55,000 on 26 August 1997 and is secured by a mortgage. X. also asserted claims against A. arising from his work as a lawyer. X. assigned his claims to Y. on 15 December 2008. Y. capitalized them at CHF 50,000 as a business asset.

The second contributed claim is a compensation claim of X. against a community of heirs for CHF 50,000, secured by a promissory note for CHF 15,000. According to the inheritance contract of B., established on 21 January 1992, X. had been appointed heir to a property. After the accrual of the inheritance, the property could not be transferred to X. Therefore, X received a compensation claim of CHF 50,000 from the community of heirs. X. entered this

The claim was also transferred to Y. on 15 December 2008. Y. capitalised them at CHF 50,000.

In the previous year (2010), the first tax year in Kt. Glarus, the two loss certificates had been assessed as declared as business assets. The same applied to the years 2008 and 2009, which had been assessed by the Schwyz tax administration.

X. comes to you with the following questions:

Questions:

1. Is the tax administration of Canton Glarus for the tax period 2011 bound to its qualification in the previous year (2010) and to that of the former tax authority (Canton Schwyz)?
2. If there were no binding effect, is the view of the tax administration of Kt Glarus correct?