Issues in the context of family taxation

Case 1: Taxation of spouses

Mr. and Mrs. Dupont had met in France and married there. After a few years, Mrs Dupont felt homesick and returned to Switzerland in 2013. Mr Dupont remained in France. Both were gainfully employed. Among other things, Mr. and Mrs. Dupont held joint securities accounts with UBS in Switzerland and Lloyds Bank in the UK.

How are Mr and Mrs Dupont taxed in Switzerland?

Mr. and Mrs. Dupont have not declared the securities custody accounts or the income from them either in France or in Switzerland.

What happens in the context of the automatic exchange of information? What are the tax consequences in Switzerland? Who is liable for any taxes?

Case 2: Divorce

Mr. and Mrs. Meier have drifted apart and are thinking about a divorce. They have two children, a shared house and a shared holiday apartment.

Mrs Meier moves out and Mr Meier and the children stay in the common house. Mr. Meier is responsible for all costs of the children and the property, including interest on debts. Mrs. Meier pays her living expenses from her earned income (part-time). Since her salary is not enough, she pays the difference with her credit card. The credit card bills are settled by Mr. Meier. There is no written agreement.

What is the taxation of Mr and Mrs Meier?

Finally, divorce occurs and the following divorce convention is up for discussion:

• The spouses keep the house together. Mr. Meier stays in the house with the children until the younger child is 18 years old. Mr. Meier pays the maintenance and mortgage interest. The mortgage continues to be in the name of both spouses. After that the house is to be sold.
• Mr. Meier takes over the holiday home with a mortgage and settles the difference in cash.
• Mrs. Meier receives half of Mr. Meier's pension fund assets (taking into account her own pension fund assets).
• Mrs Meier receives alimony for the next seven years.
• If one of the children (after reaching the age of 12) moves in with Mrs. Meier, Mrs. Meier will receive additional maintenance payments for this child.

How is this divorce convention to be assessed from a tax perspective?

Since Mrs. Meier would like to have more money at her disposal, she would prefer a compensation payment in this amount instead of the pension fund assets.

Does this have tax implications?

One of the children is eager to take cello lessons. Mr Meier is against it and does not pay for the lessons. Frau Meier, who likes music, pays the child for cello lessons and the rent of the instrument.

How is this to be assessed from a tax perspective?

Mr. Meier has made substantial tax payments in previous years, as the tax authorities have not accepted the claimed maintenance costs for the properties. However, he expects that the appellate court will decide in his favour and eventually result in a credit balance.

Should the divorce convention include a provision on the expected tax credit? How is it to be assessed from a tax perspective if the divorce convention regulates liability for tax debts?

As a result of a report from the German tax authorities, the Swiss tax authorities become aware of a bank deposit that Ms Meier holds in Germany. It contains securities and cash with a total value of CHF 10 million. Mrs Meier inherited the money from her father more than ten years ago.

What effects does this have on the tax situation of Mr and Mrs Meier?

Case 3: extended family

Mr and Mrs Smith live in Switzerland with their three children (Sophie 14, Susan 17 and Sebastian 19).
Mrs Smith comes from a wealthy Syrian family. In its name, it has securities accounts with various European banks. Due to Mrs. Smith's Swiss residence, the banks have - as far as possible - applied for relief from foreign withholding taxes. As far as is known, the assets were not declared anywhere.
What happens within the framework of the automatic exchange of information in Switzerland?

How would the situation be if Mr. and Mrs. Smith were taxed on the basis of effort?

What if it is not Mrs Smith who is entitled to the assets, but her family in Syria?

The great-grandfather of Sophie, Susan and Sebastian, who had died in the meantime, had established a foundation in Liechtenstein, which provides regular benefits to cover the costs of education from the age of 15 until the children have completed their education or at the latest until they reach the age of 30. The benefits vary and are determined by the Board of Trustees in each individual case. In certain cases, the service may be refused altogether (e.g. in the event of a lack of willingness to perform). Before the entry into force of the automatic exchange of information, no one had given any thought to this.

What are the tax consequences of these services in Switzerland and what should be done with regard to the past?

The great-grandfather of Sophie, Susan and Sebastian had set up another foundation in Liechtenstein, the assets of which were to be divided among the male members of the family. At birth, each male member of the family receives CHF 10 million, which is administered by the Foundation and handed over to the family member upon reaching the age of 30. This foundation is secret and all beneficiaries who have already received assets had to sign a confidentiality agreement.

What happens within the framework of the automatic exchange of information in Switzerland?

Case 4: Relationship

Mr. and Mrs. Müller are retired and live in their own house. They own other properties, the majority of which they rent out. One property is occupied by the adult daughter and her family. The daughter does not pay rent, but is responsible for the maintenance of the property. Mr. Müller's long-time mistress also lives in an apartment that belongs to the Müller spouses. It pays a rent that is slightly below the imputed rental value. Mrs Müller has no knowledge of this. There are no written contracts with either the daughter or the lover.

What does the tax treatment look like?

Mr. Müller has been suffering from a dementia disease for a few years now, which is gradually worsening. The KESB intervenes and appoints a counsel for Mr. Müller, who takes care of Mr. Müller's personal and financial concerns. In the course of the inventory, the counsel finds out that Mrs. Müller is constantly making higher cash payments. It turns out that she secretly gives the money to her son who has been a drug addict for years.

Does the appointment of an adviser have an impact on the taxation of Mr. and Mrs. Müller?

What about the payments to the son?

A few years later Mr. Müller dies. He has drawn up a will with the following content:

• I disinherit my son.
• My daughter will get the house she lives in.
• My mistress receives a lifelong right of residence in the apartment where she lives. The rent remains the same as before.

The municipality X, which has been supporting the son for years, contacts Mrs. Müller and announces an action for reduction in favour of the son. After a long period of to and fro, the parties agree on the following and record this in writing:

• The son or the community receives the compulsory portion.
• The daughter receives the house in which she lives.
• The mistress receives a lifelong right of residence at the previous rent of the apartment in which she lives.
• Mrs Müller receives the rest.

What is the tax treatment? What about the legal fees of the individual parties? What should the parties involved pay attention to when distributing the assets?