Intercantonal and international tax differentiation for real estate of business and private assets

Case study 1 Tax deferral for cross-cantonal replacement

Facts

A. was the owner of a property in D. /NW, which served him as permanently and exclusively owner-occupied residential property. On 3 January 2001, he sold the property out of his private assets to a third party for F 1,490,000. One year earlier, on 7 January 2000, A. had acquired condominium property for Fr. 1,093,714, in which he lived thereafter. The Canton of Nidwalden determined a taxable property gain of CHF 410,500, set a replacement purchase price of 74 percent of the sales proceeds and deferred taxation of the amount of CHF 303,800 and definitively deducted the remaining profit of CHF 83,140 (26 percent).

Nine years later, by contract dated 15 March 2010, A. sold his condominium property located in the canton of Lucerne. In doing so, he redeemed CHF 1,130,000. As a result of insufficient proof of legal title, the Lucerne-Land land registry office rejected the land register application with the decision of 7 May 2010. The change of ownership, based on the adjusted purchase agreement of 23 July 2010, was finally entered in the diary of the land registry on 27 July 2010. From now on, A. will use a floor unit as his own residential property, again located in D. /NW, which A. had acquired with the diary entry of 5 May 2008.

The municipality of C. /LU assessed the land profit by decree of 31 March 2011, deducting from the gross proceeds (CHF 1,130,000.--) chargeable expenses (CHF 30,413.--) and investment costs (CHF 1,016,447.--) before finally taking into account the deferred tax base of CHF 303,800.--. With a taxable profit of CHF 386,940, this resulted in a real estate profit tax of CHF 83,391.

The canton of Nidwalden also taxed the deferred property gain of CHF 303,800. In his decision of 14 July 2011, he justified this by stating that the prerequisites for a (further) deferral of the real estate gains tax were not met. In the canton of Nidwalden the taxable amount was CHF 45,570. The order of 14 July 2011 came into force unchallenged.

Questions

1. What are the conditions for an intercantonal tax deferral of the real estate gain?
2. How is the intercantonal taxation of a deferred real estate gain divided up?
3. Which canton is entitled to tax?
4. What special procedural features arise if a violation of the prohibition of intercantonal double taxation is claimed?

Case study 2 Replacement procurement, legality principle

Facts

A. sold his condominium in B. /ZH on 21 February 2011 at a price of CHF 1,850,000. As of 15 February 2011, he had moved his residence to D. /GR, where he had acquired a property for CHF 5,250,000. Due to the reinvestment of the proceeds in a replacement property used in the same manner, the property gains tax was deferred by an assessment decision of the property tax authority B. /ZH dated 25 May 2011 as a result of the replacement purchase. For business reasons, A. moved his main residence to the United Kingdom on 31 December 2012. With the post-tax ruling of 17 December 2014, the property tax authority B. /ZH A. imposed a real estate gains tax of CHF 221,942, as the prerequisites for the granting of the tax deferral were no longer fulfilled with the departure. In this context, the tax authority argued that the establishment of a permanent and exclusively owner-occupied replacement property required a certain amount of time and that a 22-month use of the property as a primary residence did not yet fulfill this requirement.

In determining the minimum period, the authority relied in particular on the circular from the Finance Directorate of the Canton of Zurich to the municipalities "on the deferral of real estate gains tax in the event of replacement acquisition of a residential property used permanently and exclusively for owner-occupation (section 216(3)(b) of the Tax Code). i and § 226a StG)" of 31 March 2014, which provides in point 11 in conjunction with 28 that a sale or a definitive misappropriation of the replacement property within five years after the change of ownership of the original property leads to the cessation of the tax deferral and to subsequent taxation of the deferred profit.

Question

May the canton of ZH return to the tax deferral originally granted?

Case study 3 Tax evasion of a natural person resident abroad with various special tax domiciles in Switzerland; company loss in Switzerland

Facts

The spouses A.A. and B.A. are resident in Germany. A.A. owns, among other things, a private property in the canton of Zurich and a hotel in the canton of Grisons.
Their income was made up as follows:

Questions

1. Taxpayers consider that the economic residence of an individual resident abroad calls for a consolidation approach. This means that a virtual "Canton Switzerland" (comprising all special tax domiciles) must be created in advance for the tax assessment to be carried out and the foreign (resident) state must be treated as a "Canton Germany".
   a. What are the arguments in favour of this solution, what are the arguments against it?
   b. What does tax evasion under this concept look like?
2. How is the tax separation to be carried out if the taxpayers' solution is rejected?

Option 1: Loss at the foreign main tax domicile, domestic special tax domicile of the place of real estate

Facts

The married couple U.K. and X.K. are based in London. In Nyon/VD, they are each half co-owners of a condominium with a tax value of CHF 700,000; they also own property worth CHF 800,000 in Spain, as well as moveable property worth CHF 2,000,000.

Their income was made up as follows:

Questions

1. In their main submission, the taxpayers argue that, in the case of limited domestic tax liability of a natural person resident abroad, the interest on debts should be proportionate to the situation of the assets. A negative balance from investment income abroad must be taken into account when calculating taxable income in Switzerland, both for taxable income and for income subject to the rate.
   a. What are the arguments in favour of this solution, what are the arguments against it?
   b. What does tax evasion under this concept look like?
2. In the contingency application, the taxpayers argue that the debt interest should be objectively relocated.
   a. What are the arguments in favour of this solution, what are the arguments against it?
   b. What does tax evasion under this concept look like?
3. How is the tax separation to be carried out if the taxpayers' solutions are rejected?

Option 2: Loss at the foreign main tax domicile, domestic special tax domicile of the place of real estate

Facts

The spouses A.Z. and B.Z. are resident in Geneva and live there in their condominium. In Chamonix (F) they have a second residence.

In their tax declaration, they declare two mortgages: one for CHF 1,000,000 secured by the property in Geneva (the mortgage interest amounts to CHF 40,000), and a second for CHF 5,500,000 secured by the property in Chamonix (the mortgage interest amounts to CHF 160,000).

Their income is made up as follows:

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Questions

1. The taxpayers take the following view: if the transfer of debt interest according to the situation of the assets in relation to the income taxable abroad results in a debt interest surplus, this surplus must be set off against any income taxable in Switzerland
   a. What are the arguments in favour of this solution, what are the arguments against it?
   b. What is the tax exemption under this concept?
2. How is the tax separation to be carried out if the taxpayers' solution is rejected?

Case study 4 Economic change of ownership

Facts

FR AG, with its registered office in Fribourg, aims to place assets and to hold, buy and sell assets in the real estate, hotel, etc. sectors. Your tax domicile is in the canton of Fribourg. It has no secondary tax domiciles in other cantons.

In the period from May 2005 to May 2006, FR AG acquired 51 percent of VD AG's stock.

VD AG, headquartered in Lausanne, is a real estate and movables trading company. As at 31 December 2007, its balance sheet showed assets of 13 million, of which 12.5 million related to properties in the Morges/VD municipality. On October 25, 2007, FR AG sold its stake in VD AG to D AG, generating a profit of

In November 30, 2007, D AG acquired the remaining 49 percent stake in VD AG.

Questions

1. How is the capital gain of FR AG to be qualified for tax purposes?
2. Who is legitimated to tax the profit in the case of double taxation?
3. What role can the acquisition of the remaining 49% of VD AG by D AG play?