Current problems of taxation of partnerships (2019)

Case 1: Taxation of liquidation profits from medical practice

Facts

Kurt Heiler, MD, opens a family practice in 2003. In 2004, he suffered a stroke, as a result of which he reduced his self-employment (medically certified residual earning capacity of 20%). He is supported by his sister, who works as a practice assistant in the practice until June 2010. In 2012, at the age of 52, his health problems will force him to give up work completely. Dr. Heiler applies for privileged taxation of liquidation profits for the tax period 2012, whereby liquidation-related dissolved hidden reserves in the total amount of CHF 310,000.00 result from the business property.

Questions

1. Under what conditions can privileged liquidation profit taxation be granted in accordance with Art. 37b DBG?
2. Are these fulfilled in the present case?

Case 2: Liquidation profit taxation Notary

Facts

Richard Siegel (born 1945) was an independently acquiring notary until 2012. Under the commercial law in force at the time, it was not subject to the obligation to keep accounts. Nevertheless, he voluntarily kept records. In the 2011 annual financial statements, he recorded work in progress of CHF 1.2 million for the first time. On 1.5.2012, Mr. Siegel retired from his notarial activities due to age.

In the 2011 tax return, Mr Siegel reported taxable income reduced by the work in progress in 2011. The former qualified as realised hidden reserves subject to the privileged taxation of liquidation profits. However, the assessment authority subsequently calculated this amount as (ordinary) taxable income from self-employment.

Questions

1. What falls under the concept of hidden reserves according to Art. 37b para. 1 DBG and Art. 11 para. 5 StHG?
2. Do work in progress (booked for the first time) qualify as hidden reserves?

Case 3: Loss from ordinary activities in the event of liquidation

Facts

A., who lives in the canton of Zurich. (born 1943) ran a restaurant (sole proprietorship) until 30 September 2014.

In the last two financial years (2013 and 2014), losses were incurred from ordinary business activities: 2013 of CHF -154,440, 2014 of CHF -120,228.

The realization of hidden reserves resulted in liquidation gains within the meaning of Art. 37b DBG and § 37b StG ZH: 2013 of CHF 515,302, 2014 of CHF 154,300.

In the proposed assessment for the tax years 2013 and 2014, the loss from ordinary activities was offset against other income and liquidation profits were assessed separately. A. agreed with the proposals. A few weeks later, the tax commissioner A. announced that the calculations in the proposals had been wrong. The loss from ordinary activities in 2013 and 2014 was to be offset against the liquidation profit. It resulted:

A. does not accept this and wants to defend himself.

Question

What is the legal situation?

Case 4: Equity trading by a founding investor

Facts

A., who lives in the canton of Zurich, is a successful investor. His idea was to introduce a certain e-commerce concept, called D concept, in various countries. To this end, he invested in numerous foreign start-up companies and provided them with advice and support.

Together with five other investors, A. founded C. Ltd. in June 2010, in which he henceforth held a 10% stake. In accordance with the signed Shareholder Agreement, the investors undertook to devote their time and attention to C. Ltd. and not to compete with it. In return, the investors receive extensive rights of control and inspection.

In January 2011, C. Ltd. was sold to company D. Through the sale of his shares, A. realized a capital gain of CHF 500,000.

Entrepreneur A. enjoys great attention in the social media platforms and is announced as "serial-entrepreneur" and as "investor and co-founder". According to various online reports, A.'s personality was decisive for the successful sale of the company C. Ltd. Although A. never stepped outside for Project C. Ltd., as the operating activities were the responsibility of a local team on site. However, the active support of A. during the start-up phase is said to have been decisive.

In an e-mail of 9 September 2013 to the Zurich tax office, the obligated person describes his activity as a multiple company founder, in each case in the role of an "enabler", in an attempt to rapidly internationalise successful North American internet platforms in order to achieve a "first mover advantage". In each case, he himself was not operationally active, but he had the founding idea, brought together and motivated local teams of founders for operational implementation and supported them with strategic know-how. In particular, he brought the D concept to various countries and established it in Africa with C Ltd. He then states that he has also implemented the G concept in various countries and participated in other company start-ups.

A. was also involved in the founding of the internet platform H AG at the end of 2011 and later served as Vice President and member of the Executive Board. In October 2011, A. and two other persons founded I AG, which intends to launch a link between two computer programs.

He then holds a 1% stake in L GmbH. He claims to have received his participation in return for bringing in his network of contacts in Russia.
A. took out some loans (the exact amount of which is not known).

In the assessment or estimate of May 2014 for the 2011 tax year, A.'s investment activity is qualified as part-time equity trading. The realized capital gain of CHF 500,000 is taxed as income from self-employment.

Questions

1. What criteria are decisive for the existence of part-time equity trading?
2. Was A. rightly qualified as self-employed?

Case 5: Transfer of losses carried forward to heirs

Facts

Barbara Bärbel is the sole heir of her father Hans Verlustreich, who died on 1.7.2016, and who worked as a self-employed person in the real estate sector (property trading, property brokerage, property management). Barbara Bärbel continues the business activities of her father. In her 2016 tax return, she will claim the tax loss carryforward from her father's business activities and offset it against further income. The assessment authority refuses this deduction.

Questions

1. What is the effect of the death of a taxpayer in relation to his heirs?
2. What are the effects of the death of a taxpayer on his business assets?
3. Can an heir claim for tax purposes a loss carried forward by the testator in respect of his own tax factors?

Case 6: Private art collection

Facts

A., who lives in the canton of Zurich. (65 years old) is a doctor. His hobby in the scarce free time in the past 40 years was and is art. He is passionate about collecting. In the course of time, a more extensive art collection developed from this, which today comprises almost 400 objects. Among them are several colour lithographs, serigraphs, African woodcarvings, quilts, works by Chinese artists as well as works by unknown artists. A. bought works of art that he liked at that moment. A. bought most of these works for little money. A glance at the insurance list shows that many of these works still have a low or, for A., emotional value. About a dozen works increased in value. The insurance value of the works that can be valued amounts to approximately CHF 3 million.

A. wants to move. In his search for new living space with room for as many of his works of art as possible, although realistically this can only be a fraction of all his works, he once again gains an overview of the works of art he has acquired over the years. Several works are in the apartment in the city, in the doctor's office and at the second home, many others are stored. A. would like to set some thematic priorities in his collection. Some of the works do not fit into any of the themes. He wants to sell these. His three children are not interested in the art he collects. He is considering having the works auctioned off.

Question

Does A. risk being qualified as a professional art dealer if he sells part of his collection?

Variant

A. is a descendant of a wealthy family and inherits numerous antique works of art that are part of the family estate. He is not wealthy himself, apart from the inherited art. Since he can hardly finance the property tax for the antique works of art from his income, he plans to sell these works at one or more auctions.

Question

Does A. risk being qualified as a professional art dealer when selling the inherited family collection?

Case 7: Own commission

Facts

Marco Immobile sells one property at a profit on 30.4.2017. In the case of the real estate profit tax, he claims commissions of CHF 200,000, which were paid to his sole proprietorship and which were also recorded in its annual accounts.

The income tax assessment 2017 of Marco Immobile will be carried out taking into account the CHF 200,000 booked and will become legally binding. However, in the case of the real estate profit tax assessment, which is only carried out after the income tax assessment has become legally effective, the commission deduction of CHF 200,000 is refused.

Questions

1. Is the refusal to deduct real estate gains tax justified?
2. Does a request for revision of an income tax assessment for 2017 have any chance of success due to double taxation?

Variant

Contrary to the initial situation, Marco Immobile had already attempted to claim a commission from the tax authorities on the sale of land in 2013, but the tax authorities refused to do so.

Question

Would the facts of the case lead to a different assessment of the appeal?

Case 8: Purchase of occupational benefits

Facts

The taxable person A. is a musician by profession. On the one hand, he is employed as a part-time lecturer at the University of Applied Sciences D. and at the University of Applied Sciences E. On the other hand, he also works as a self-employed music teacher.

In 2015, A. retires from the Fachhochschule D. at the age of 58 and receives a pension from the Pension Fund D.

A. continues to work at the Hochschule E. and increases his part-time workload there. With regard to this activity, A. is insured with the Pension Fund E. The increase in the workload has resulted in a coverage gap at Pensionskasse E.

For his self-employment, A. previously regulated his pension provision via pillar 3a. In 2016, A. joins the collective foundation F.

In 2016, A. also made an extraordinarily high profit in the context of his self-employment due to the sale of an extremely rare musical instrument.
In order to close his coverage gaps, A. first makes a purchase into the Pension Fund E. and then into the Collective Foundation F. In his tax return, A. claimed the purchases into the Pension Fund E. and into the Collective Foundation F. However, the tax office offset the purchase against the F. Collective Foundation and justified this with the prohibition of double insurance.

Questions

1. Was A. rightly refused the deduction of his purchase into the Collective Foundation F.?
2. The tax office takes the view that the insured income in the case of A.'s self-employment does not correspond to the actual income, as this is due to an extraordinary profit. With good reason?