Current problems of intercantonal and international corporate tax law (2017)

René Matteotti

Philipp Betschart

Case study 1 S-Corporation

Facts

A is resident in Switzerland. He holds a 25% interest in a corporation established under the civil law of a US state. This corporation is taxed like a partnership under US tax law (S-Corporation). The company operates several private hospitals in the USA with its own staff.

Questions

What tax consequences result for A from his participation in the S-Corporation under Swiss internal tax law?
Does the double taxation agreement between Switzerland and the USA result in tax consequences that differ from the internal Swiss tax law?
Option 1: The company's activity is limited to the management of movable securities assets. It does not have its own staff or office space. Are there different tax consequences than in the basic situation?
Option 2: The company's activities are limited to the holding of several apartment buildings located in the USA. It does not have its own staff or office space. Are there different tax consequences than in the basic situation?

Case study 2 Mitigation deficit in the partial taxation of dividends

Facts

C has unlimited tax liability in the canton of Aargau due to his residence. In the canton of Zurich, he has a business operation and real estate.
In the canton of Aargau, it was estimated with the following factors:

The canton of Aargau taxes income from qualified investments at 40% of the total rate. Accordingly, the canton of Aargau taxed C CHF 400,000 at 40% of the total rate.

In the canton of Zurich the following assessment was made:

Since the income of CHF 300,000 taxable in the Canton of Zurich according to the tax ruling included only income from real estate and business operations, all income taxable in the Canton of Zurich was taxed at the overall rate. The partial tax rate procedure was not granted due to the lack of taxation of qualified investment income.

Questions

Can C demand that the income taxable in the Canton of Zurich be subject to the partial tax rate procedure in whole or in part?
Variant 1 to the basic situation: The canton of residence does not apply the partial taxation procedure but the partial taxation procedure and taxes 60% of the qualified investment income. Are there now other tax factors in the canton of Zurich?
Variant 2 to the basic situation: The canton of residence does not mitigate the double economic burden, it does not have any partial taxation procedures. Are there now other tax factors in the canton of Zurich?
Variant 3 to the basic facts: C is not located in the canton of Aargau, but in Germany. For the rest, the facts of the case remain unchanged. Can C demand that the income taxable in the Canton of Zurich be subject to the partial tax rate procedure in whole or in part?

Case study 3 Duty to cooperate and burden of proof

Facts

The X Group has its headquarters in the canton of Berne. In 2016, it founded a new subsidiary, XO AG, in the canton of Obwalden and now receives a substantial portion of its sales through this company.

The tax administration of the Canton of Bern subsequently opens sovereign proceedings and investigates whether XO AG has its actual administration or a permanent establishment in the Canton of Bern. By means of a filing request, it requests XO AG to submit various documents, including the rental agreement for the business premises of XO AG in the canton of Obwalden.

Questions

Who bears the burden of proof in this case for the existence of an actual administration or a permanent establishment in the Canton of Bern?
Is XO AG obligated to cooperate in the taking of evidence? What are the consequences if XO AG refuses to cooperate in the taking of evidence?
Variant: The XO AG has its actual administration in the canton of Bern. In the course of the assessment procedure, the tax administration determines that XO AG has made interest and commission payments to an institution domiciled in Liechtenstein. For this purpose, XO AG submits two confirmations of the institution to the tax authorities, according to which it had received these payments. Furthermore, a loan and agency agreement exists between XO AG and the institution, which regulate these interest and commission payments. XO AG claims to have no further information. In particular, it was not possible for it to determine who was the beneficial owner of the establishment. Are the interest and commission payments at XO AG to be allowed for deduction?

Case study 4 International administrative assistance in the business sector: data subjects and information holders

Facts

The competent service of the Dutch tax authority (Belastingdienst; hereinafter: BD) submitted a request for international administrative assistance in tax matters to the FTA on 13 June 2013, following a tax audit concerning A.A. and Z. BV. The request concerns the X. AG (since 7 July 2008: X. AG in liquidation), Y. AG, A.A. and Z. BV.

In order to ensure the correct collection of Dutch income and corporation tax, the BD asked the FTA who the shareholders of X. AG or the Y. AG, whether A.A. or Z. BV were the direct or indirect owners of X. AG or the Y. AG and whether they are or have been in any way related to either of these two public limited companies and whether they are or have been included in the accounts of Y. AG "cash payments" by A.A. and/or Z. BV and which services Y. AG had provided for this. In this context, an overview of the cash receipts exceeding EUR 1,000 and the related documents were also requested. In addition, the BD requested information as to whether, in the period from 1 March 2010 until the submission of the administrative assistance application on 13 June 2013, the four persons affected by the administrative assistance application had each had bank accounts, accounts, investment accounts, etc. at the banks Alpha, Beta, Gamma and Delta as individual account holders, entitled persons or authorised representatives. With regard to these (possible) banking relationships, the BD asked questions about the respective credit balances on 1 March 2010, 1 January 2012 and 31 December 2012, the respective account movements from 1 March 2010 to 31 December 2012, the identity, address and place of residence of any entitled persons and authorised representatives of these accounts and the date of their opening and any closure.

Questions

Who is entitled to appeal against the FTA's decisions in the area of international administrative assistance and who is a party to the proceedings?
What conditions must the information requested by a state fulfil so that it can be exchanged on the basis of the OECD-MA or DTA CH-NL within the framework of international administrative assistance?
Who is considered a data subject in terms of the StAhiG? In particular, how is Article 4(3) of the StAhiG to be interpreted and what role does the requirement of probable materiality play in that regard?

Case study 5 International administrative assistance in tax matters: Reach through

Facts

On 14 March 2012, the French tax authority requested the FTA to provide administrative assistance in tax matters concerning B. in order to obtain information on the Geneva company A. GmbH, of which he is to be the sole shareholder. In support of that request, it submits that B. receives royalties from a French company in return for the right to use trade marks which it owns. Moreover, B. has not declared any income since he brought these trademark rights into the company in 2009. The French tax authorities therefore requested the following information on A. Ltd:

Tax liability
Tax rate applied for the 2010 tax period
tax amount paid for the tax period 2010
Business activities ̈tigkeit
Details of the business premises
number of employees
Amounts of compensation, dividends and attendance fees paid to B.
Annual accounts 2010

Questions

Which of the above information meets the requirement of likely materiality?
Who can the FTA contact to obtain this information?
Is A. GmbH considered a data subject within the meaning of the StAhiG?
Is the question whether A. GmbH qualifies as a data subject within the meaning of the StAhiG a question of fact or law? Why is this relevant?
If the company qualifies as a person concerned, what is the legal basis for the extent of its duty to cooperate?

Case study 6 Group-internal exchange of rulings

Facts

The CH holding company, which is based in the canton of Zug, holds interests in several operating companies based in Switzerland. The CH holding company has the following two rulings in Switzerland:

Holding status confirmation
Unilateral Advance Pricing Agreement (APA), which determines the amount of compensation for all management services provided by the holding company to the domestic and foreign Group companies according to the cost plus method (+10%).

Through a shareholding in one of the Swiss companies mentioned above, CH-Holding holds a 100 % interest in a Spanish company (hereinafter ESP-Co.).

In Spain, the transfer pricing documentation provided for by BEPS Action 13, consisting of a master file, local file and a country-by-country report (hereafter: CbCR), is fully implemented (see Article 18 of the Spanish Corporate Tax Law (27/2014) and Decree 634/2015 (Articles 13-16)). From the 2016 tax period onwards, the ESP-Co. is thus obliged under internal law to follow the three-stage documentation approach if certain turnover criteria are exceeded.

On this basis, the CFO of ESP-Co. contacts the CFO of the CH holding company and asks for information on whether the company has rulings in Switzerland concerning service relationships with ESP-Co. The CFO in Switzerland sends a copy of the relevant rulings to the CFO in Spain. The Spanish local file will then be provided with copies of the existing documents relevant to the service relationship with ESP-Co.

rulings so that they can be forwarded to the Spanish authorities in the event of a subsequent tax audit.

Questions

Which rulings must be attached to the local file according to the OECD?
From a criminal law point of view, may the CFO of the CH holding company transmit the relevant rulings to the CFO of ESP-Co. for the purpose of complying with the foreign transfer pricing rules?
Is the CFO of ESP Co. making himself liable to prosecution? How would the case be assessed if the Spanish tax authority had issued an individual and specific order requiring ESP-Co. to submit the relevant rulings?
What data protection considerations must be made?