Intercantonal and international tax differentiation for real estate held as business and private assets

Case study 1: Land in business and private assets

Basic facts

Grau lives in his single-family home in Zurich. He is the owner of a shoe shop at his residence (sole proprietorship) and owns a condominium in Klosters, a holiday home in Bavaria (D) and a holiday home in the South of France. The holiday homes are used by himself for a few weeks per year.

Variant 1.1

Effective maintenance of CHF 20,000 is claimed for the property in Klosters.

Variant 1.2

Same as basic facts; however, effective maintenance of CHF 50,000 is claimed for the property in Germany.

Variant 1.3

Same as the basic facts; the Zurich property account shows a loss of -CHF 60,000; gross income from the Klosters property CHF 80,000 (maintenance at a flat rate of 20%).

Variant 1.4

As variant 1.3, but the self-employment in Zurich results in a loss of CHF -65,000.

Case study 2: Replacement procurement across the cantonal border

Facts

Fertig-Element AG produces components and has its headquarters in the canton of TG and a production site in the canton of ZH. Production and sales take place at both locations. Directly adjacent to the existing production building in the Canton of TG, Fertig-Element AG has a piece of building land which it acquired a year ago for CHF 1,800,000 (= current book value) as a reserve for a planned warehouse. Today, some components are stored there in the open. The neighbouring Knorr AG now wants to acquire the land at all costs because it is bursting at the seams. For various reasons, Knorr AG would like to complete the transaction in 2012, but would like to let Fertig-Element AG use part of the land until it has found a replacement solution.

At the beginning of 2013, Fertig-Element AG could acquire a suitable piece of land in the canton of ZH instead of the building land reserve in the canton of TG and realise the planned warehouse there. The projected costs for this alternative solution amount to only CHF 2,200,000 (total investment costs), but the transport and infrastructure costs are somewhat higher.

Questions

1. Can Fertig-Element AG claim the replacement purchase?
2. What are the tax consequences in ZH and TG if the property in ZH is sold for CHF 3 million after 4 or 6 years (profit CHF 1 million; no replacement purchase)?

Case study 3: Participation deduction in the property-only canton

Facts

Produkt AG has its registered office in its own business premises in Canton A. It also operates a branch in Canton B (business premises). Finally, in Canton C it has only one investment property (investment property).

Produkt AG holds a 100% interest in Bond AG, which is domiciled in the canton of D. This company distributes an annual dividend of over CHF 1,000.

The tax segregation and calculation of the tax due for Produkt AG in 2011, which was carried out in correct application of the tax segregation rules, is as follows:

The profit tax rate is proportionally 20% in all cantons.

Question

How is the participation deduction to be calculated?

Case study 4: Transfer of registered office and offsetting of losses after change of system

Facts

X AG moved its registered office from Canton A (monistic system) to Canton B (dualistic system) at the end of 2008. The manufacturing plant and several properties remained in Canton A.

In the case of direct federal tax, X AG had offsettable losses from the previous year of around CHF 16 million. For state and municipal taxes, these amounted to around CHF 26 million according to the canton of departure.

In 2010, all properties in Canton A were sold at an accounting profit of approximately CHF 20 million. Around CHF 9 million of the gain on sale was made up of recovered depreciation and around CHF 11 million of capital gains. The operating result for the year was CHF 1 million, bringing the total reported profit for the financial year to CHF 21 million.

The capital gain was recorded in Canton A with the real estate gains tax. However, since the market value of the land twenty years ago could be taken into account with regard to the investment costs, no taxable profit resulted for real estate gains tax.

Questions

1. Does the canton of origin B have to take over loss carryforwards? If so, in what amount?
2. Can the operating losses in canton A be offset
   a) against recovered depreciation?
   b) No offsetting, as no property gains tax?
   c) with the capital gain according to the accounting?

Case study 5: Economic change of ownership intercantonal and international

Basic facts

On 15 December 2011, Gallus-Holding AG, domiciled in St. Gallen, sold its 100% interest in Immo-AG in Frauenfeld for CHF 3 million. The book value of the investment at the time of sale was CHF 0.3 million. Immo-AG essentially holds a well-rented office building.

Questions

1. What are the tax consequences of this change of ownership?
2. Are there any possible implications for Immo-AG?

Variant 1

In a change to the basic facts, Immo-AG was held by Maja Arter, resident in Wil (SG). On 15 December 2011, she sold all shares (private assets) to a German investor (private individual) domiciled in Munich. The other information remains unchanged.

Question

What are the tax consequences for Ms Arter?

variant 2

Later, the German investor sells the Immo-AG at a profit to the German Investment GmbH based in Munich.

Question

Who is entitled to the right of taxation?