Current problems of intercantonal and international corporate tax law (2018)

Case study 1: Intercantonal replacement procurement of real estate

Facts

S AG produces confectionery in its own premises in the canton of Zurich. In 2014 it acquires a new property in the canton of St. Gallen, to which it relocates its headquarters and production in the same year. It also sells the property in the canton of Zurich in 2014. It claims a replacement purchase for the sale of the Zurich property.

In 2018, it will cease production in St. Gallen and sell the St. Gallen property.

The following values are relevant for the Zurich property (in CHF million)

The following values are relevant for the St. Gallen property (in CHF million)

No other investment or disposal costs are to be taken into account.

Questions

The tax consequences for S AG from the sale of the St. Gallen property in 2018 must be examined:

1. Which canton is responsible for taxation?
2. (a) How is the 2018 taxable profit determined?
   (b) Does it make a difference here that in the Canton of Zurich part of the book profit in 2014 would not have been taxable at all without the replacement (difference of CHF 3 million between the market value 20 years ago [CHF 9 million] and lower investment costs [CHF 6 million])?
   (c) If not, how could taxation of this difference be avoided?
3. Is the profit deferred in 2014 in the Canton of Zurich to be determined in a ruling?
4. How would the above questions be answered in the reverse constellation (replacement of a St. Gallen property by a Zurich property)?
5. What would be the answer to Question 1 if S AG sold the property in St. Gallen to Immobilienfonds X only six months after acquisition and then rented it from the latter (sale and lease back)?

Case study 2: Economic change of ownership

Facts

The ordinary taxed P AG, based in the canton of Thurgau, holds 100% of the shares in I AG, also based in the canton of Thurgau. I AG is a real estate company.

In 2018, P AG sells its stake in I AG to Q AG. In doing so, it will achieve a capital gain (difference between the proceeds of the sale and the income tax value of the participation I AG) of CHF 10 million. Of this capital gain, CHF 4 million is attributable to a property held by I AG in the Canton of Zurich and CHF 6 million to a property held by I AG in the Canton of Grisons. Neither the investment in I AG nor the two properties held by I AG were depreciated in the past. Therefore, only value appreciation gains and no reintroduced depreciation are incurred.

Questions

1. What are the consequences of the sale of the participation in I AG for the profit or real estate profit taxes in the cantons of Zurich, Grisons and Thurgau?
2. Do other tax consequences arise if P AG sells only 51% of its shares in I AG and temporarily retains the remaining 49%?
3. What would be the answer to Questions 1 and 2 if P AG had its registered office not in the canton of Thurgau but in the Netherlands?
4. What would be the answer to Questions 1 and 2 if P AG had its registered office not in the canton of Thurgau but in Luxembourg?

Sachverhaltsergänzung

In 2023, I AG sells the two properties in the cantons of Zurich and Graubünden (changes of ownership under civil law).

The following values are relevant for the Zurich property (in CHF million):

The following values are relevant for the Graubünden property (in CHF million):

Other investment or sales costs are not to be taken into account.

What are the profit and property gains tax consequences for I AG in the cantons of Zurich and Graubünden from the sale of the two properties?

Case study 3: Administrative assistance on transfer pricing

Facts

The XYZ Group has several subsidiaries, including in France and Switzerland. The Direction Générale des Finances Publiques (DGFP, tax authority in France) submitted several requests for administrative assistance to the FTA on the basis of Art. 28 of the DTA CH-FR. The legal entities mentioned in the requests are B GmbH and C GmbH and other companies. The legal entities concerned in Switzerland are A GmbH, B GmbH, C GmbH and D GmbH.

According to the DGFP, the Group's activities were reorganised in 2009, particularly in France. The change in transfer pricing policy for XYZ Group led to a change in the allocation of profits within the Group. French tax law stipulates that transactions between companies of the same group must be carried out under the same conditions as if they had been carried out between independent companies. Moreover, in the case of cross-border transactions between companies in the same group, it is necessary to have information on those companies and the distribution of profits. That information is indispensable for the French tax administration to be able to determine the amount of profits derived from activities in France and to determine the taxes due in France.

The DGFP therefore requested the following information and documents:

1. Is the Swiss company named in the application known to the Swiss tax authorities? If so, since when? A copy of the updated articles of association for the period 2010 to 2011 must be submitted.
2. What is the nature of the activities carried out by this company? Does the company's activity in Europe appear in the financial and legal documents of the Swiss company? If so, the documents and enclosures (annual reports, financial reports, etc.) must be submitted.
3. What material and human resources does the company have to carry out its activities (business premises, number of employees, assets)? The number of employees, their functions and responsibilities, broken down by task, should be indicated. The organisation charts of the functions for 2010 and 2011 must also be provided.
4. Does the company regularly submit declarations? If so, what are the declared sales? Declarations of results for 2010 and 2011 (balance sheet and income statement) must be submitted and the rates and amount of company taxes at communal, cantonal and federal level must be specified for each year.
5. Does the company A GmbH or B GmbH or C GmbH or D GmbH benefit from a regime for principal companies (so-called regime of international tax allocation)? Does it benefit from a regime for auxiliary companies? In one case or another, it should be specified which part of the income comes from a fixed establishment or from foreign sources and under this heading benefits in Switzerland from an exemption or from taxation at a reduced rate. Have the Swiss authorities concluded an agreement to this effect? If so, a copy of this decision should be sent to the French authorities. What part of the income in 2010 and 2011 was taxed at the normal rate? Which part of the income has benefited from a reduced tax rate or an exemption (please specify the rate applied at federal, cantonal and communal level)?

The application concerning A GmbH also contained the following question:

It should be specified how the company was financed during the verified period. The sums transferred by company C LLC and company D LLC for the French market should be shown separately.

That concerning B GmbH the following:

Are there among the employees of the Swiss company personnel who were previously employed by the French company? Which employees were transferred as a result of the centralization of risks in Switzerland?

Finally, in the proceedings concerning D GmbH, the following information is requested:

If it is possible to identify the results obtained on French territory, if so, the corresponding elements must be transmitted.

Variant 1

Detailed transfer pricing documentation was provided to the French tax authorities, from which it can be concluded that the transfer prices withstood third-party comparison.

variant 2

The company refuses to hand over the documents of the FTA.

Questions about the basic facts

1. Must the request for administrative assistance be complied with?
2. What is the general procedure for requests for administrative assistance?

Question on variant 1

Does anything change if the French company has submitted a detailed transfer pricing study to the French tax authorities?

Question on variant 2

What are the consequences if Swiss companies refuse to disclose the information? What are the further legal proceedings after that?

Case study 4: Administrative assistance on transfer pricing: Information from third parties

Facts

The X Group, based in Switzerland, controls the subsidiary Y SA, based in Italy. During its tax audit, the Italian tax authorities found that Y SA is the owner of the main technology used to manufacture an interference spectrometer. The technology is used by Y SA itself and by its affiliated production companies, including Group companies A, B and C in Australia, India and the USA. Y SA has entered into various licensing agreements with these companies and has mainly received income in the form of royalties. However, the amount of royalty income from these Group companies is relatively low.

The Italian tax authorities are now requesting the FTA for administrative assistance in determining the transfer prices between Y SA and companies A, B and C. For this purpose, the Italian tax authority requires X SA to provide the income statements resulting from the production and distribution of the interference spectrometer in the years 2012-2015.

Variant

X AG is an intermediate holding company which holds investments in other companies of the X Group as well as investments in companies with activities in the fields of industry, trade and services. The activity of X AG also consists, in addition to its holding function for the listed group parent company, of consolidating the financial data for the preparation of the quarterly and annual consolidated financial statements and making them available to the listed group parent company. X AG is not involved in the service relationships between the foreign companies involved in the tax audit, nor in the research and development, production and distribution of interference spectrometers.

Question about the basic facts and the variant

Is X AG obliged to hand over the required profit and loss statements?

Case study 5: Refund of withholding tax

Facts

A AG has its registered office in Germany and has held half of the share capital of the Swiss company B AG since 2007. The FTA authorised B AG to deduct only 15% withholding tax (base tax) from the dividends to be distributed to A AG in the first two years and to apply the notification procedure for the rest. After expiry of the two-year holding period, the dividends could be distributed without deduction of withholding tax.

Subsequently, B AG paid a dividend of CHF 15 million to A AG. On 24 April 2008, B AG notified the FTA of the distribution of this dividend and transferred the (remaining) withholding tax of CHF 2.25 million deducted by it to the FTA. On 3 February 2012, A AG filed a refund application.

Variant

A AG has its registered office in Spain.

Questions about the basic facts and the variant

1. Is there a right to a refund?
2. Can a mutual agreement procedure be initiated under the DBA CH-E? Where would such a procedure be initiated and what would be the procedural requirements? What would a mutual agreement procedure under DBA CH-D look like?
3. Assuming that no agreement is reached in a mutual agreement procedure. Would a decision be possible before an arbitration tribunal under the DBA CH-E? How would the question under DBA CH-D be answered?
4. What would be the answer to questions 2 and 3 if there was already a supreme court ruling in Switzerland?

List of enclosures

• Case 1: Judgment of the Federal Court 2C_70/2017 of 28 September 2017
• Case 2: Judgment of the Federal Court 2C_666/2015 of 7 October 2016
• Case 3: BGE 143 II 185 of 13 February 2017
• Case 5: Judgment of the Federal Court 2C_1078/2015 of 23 May 2017