Specialties in wealth tax (valuation, bouclier fiscal, etc.)

Case 1: Home furnishings and art objects

1. facts of the case

Walter and Liliane Meier have lived in their own detached house in Winterthur/ZH since 1987. They have had their tax return prepared by their local trustee for many years. As the latter reduced his work considerably due to his age, they switched to a new tax advisor. Based on his discussion with the new clients and the files, the new tax advisor establishes the following, among other things:

After purchasing their house, Liliane and Walter Meier acquired several works by contemporary artists as furnishings. These included a lithograph by Roy Lichtenstein and a lithograph by Robert Rauschenberg, a serigraph by Keith Haring, a small watercolor by Gerhard Richter, a work by Hans-Jörg Glattfelder (acrylic/canvas) and a small sculpture by Sol LeWitt. They also added various decorative works of art with no potential for appreciation. According to Mr. Meier, the purchase prices for the art objects at the time ranged from CHF 7,000 to a maximum of CHF 30,000. Only some of the purchase receipts are still available and an inventory was never compiled.

The art objects were not declared in the previous tax returns because, according to the information provided by the former trustee at the time, they were not subject to wealth tax as household effects. The Meiers did not take out separate art insurance, but insured the works as part of their normal household contents insurance.

Factual variant A

Eight years ago, Liliane Meier took over a painting from her mother's estate that is attributed to the Chinese artist Li Fengmian, who died in 1991. Her mother had acquired it for little money in Hong Kong in the 1960s. No valuation was commissioned when the estate was divided, but the painting was allocated an assumed value of CHF 9,000. Since then, the painting - like the works listed in the basic facts of the case - has hung on a wall in the Meiers' house.

Factual variant B

In addition to the household contents insurance, there is a separate art insurance policy with agreed values totaling CHF 400,000. The most valuable individual object was insured for CHF 110,000.

Questions

• Can the current practice be continued unchanged for the 2023 tax return based on the information on the basic facts? If yes, for what reasons? If not, what further action is recommended?
• Factual variant A: does this addition change the assessment of the basic facts (with reasons)?
• Factual variant B: does this addition change the assessment of the basic facts (with reasons)?
• According to Art. 53 para. 1 StHG, any inadequate valuation of assets in legally concluded years generally precludes subsequent tax proceedings. Does this also apply if it transpires that art objects are valued higher than assumed for wealth tax purposes on the reference date?

Case 2: Valuation of an unlisted investment

1. facts of the case

Dipl. Ing. Peter Huber works as a management consultant for the machinery industry. He specializes in analyzing production processes for corporate customers and making recommendations for improving manufacturing processes. In addition to his consultancy work, he can also provide customers with machines and other technical equipment on a commission basis (thanks to his excellent business relationships) both at home and abroad. As a result of his activities, he generally carries out his work at the client's premises. He has no employees and only has an office in his own home. Administration and bookkeeping are handled by a trustee on a contract basis.

Peter Huber converted his sole proprietorship into a public limited company on January 1, 2020. The company continued to do well and he generated net profits of CHF 867,000 (2020) and CHF 1,072,000 (2021). He received a gross salary of CHF 150,000 p.a. He recently received the 2021 personal tax assessment from the cantonal tax administration with a form-based notification of the tax value of the Huber Consulting AG shares with a taxable value of CHF 7,567,000 (see enclosure: share valuation). Since the taxable value of his previous sole proprietorship was less than CHF 100,000 in each case and nothing had changed economically in the business, Mr. Huber is very surprised by the massively higher wealth tax and intends to file an objection.

Questions

• Is there an assessment error? Or how else can it be explained that the wealth tax has increased so massively compared to the past despite unchanged activity?
• Does an objection make sense in principle (the purely numerical calculation of the valuation is not to be checked)?
• If an objection is recommended, what would be the main arguments in favor of a valuation correction?
• What are the chances of success of an application for valuation at net asset value?

Case 3: Valuation of owner-occupied properties in the canton of ZH

1. facts of the case

Hanspeter Müller was lucky enough to buy an older 5½-room condominium with a garage space in Zurich-Hottingen. The apartment is relatively well maintained and only needs to be repainted. Although the price was high at CHF 2,450,000, it is within the range of current market prices in this region according to the broker's assessment. Mr. Müller is pleased that he won the bid.

According to the 2009 property valuation received from the seller, the property tax value of the condominium share is CHF 630,000, which Mr. Müller had declared accordingly in his tax return. He now receives an assessment decision increasing the tax value to CHF 1,710,000. He is completely surprised by this and suspects an error on the part of the tax commissioner.

Factual variant A

Mr. Müller has spoken to his neighbor, Ms. Huber, about the increase in the taxable value. Mrs. Huber lives in a 5½-room condominium with an identical floor plan (including garage space) in the same house. She cannot believe that the tax value in Mr. Müller's assessment has been increased so much, because according to her own assessment, the tax value is still CHF 630,000. Now Mr. Müller feels that he is being treated even more unfairly.

Questions

• Is there really an investment error?
• If not, how can this assessment be explained?
• Factual variant A: does this addition change the assessment of the basic facts (with reasons)?

Case 4: Valuation of foreign properties

1. facts of the case

Joana Keller, who lives in Schaffhausen, is a wine lover and has been going on vacation to Piedmont for many years. In 2022, she will be able to purchase a condominium in the town of Asti in Piedmont for EUR 460,000, the equivalent of CHF 450,000.

In Joana Keller's tax return, her tax advisor declares the apartment in Asti with a property tax value of CHF 315,000 (corresponds to 70% of the purchase price; similar to the valuation of domestic properties). In the 2022 tax assessment, however, the apartment was valued at CHF 360,000 (corresponds to 80% of the purchase price). Ms. Keller trusts the legal assessment of her tax advisor and lodges an objection to the valuation of the Asti apartment.

Questions

• Is there really an investment error?
• If not, how can this assessment be explained?

Case 5: Property valuation in an intercantonal relationship

1. facts of the case

Werner Uhlmann lives in Wiesendangen/ZH in his own detached house. A few years ago, he was able to buy the undeveloped neighboring plot of land (around 1,000 m2) in the building zone, which is still leased to a neighboring farmer. Three years ago, he also inherited a meadow on the outskirts of Gachnang/TG. The land, which comprises around 25 acres, is used for agricultural purposes by the previous tenant. It was once separated from a farming operation and is no longer subject to the Federal Act on Farming Land Law (BGBB).

The owner-occupied house has a property tax value of CHF 950,000 and is encumbered with a mortgage of CHF 450,000; the two plots of land used for agricultural purposes are unencumbered. Mr. Uhlmann declared the latter in the 2021 Zurich tax return in accordance with Section 40 StG ZH and the directive of the cantonal government to the tax authorities on the valuation of properties and the determination of imputed rental values from the 2009 tax period dated 12 August 2009 (ZStB. No. 21.1; hereinafter "2009 directive") at an income value of CHF 1,000 and CHF 2,500 respectively due to the type of use (2009 directive, margin no. 1 et seq., in particular margin no. 2 last sentence)^.01

When Werner Uhlmann receives the Zurich assessment for the 2021 tax period, he discovers that the capitalized earnings value assessment for his neighboring property was accepted, but not for the property in Gachnang/TG. According to the assessment decision, the Thurgau market value (taking into account the repartition difference) of CHF 450,000 was used. Mr. Uhlmann is outraged that, contrary to the clear wording of the 2009 directive, the capital gains value is not used as the basis for property tax and criticizes the legal inequality, particularly because this was accepted without discussion for his neighbouring property in the same circumstances.

Questions

• Is the refusal to assess the capitalized earnings value lawful? What are the chances of an appeal in the canton of Zurich?
• The property tax valuation is significantly higher than for a comparable property in the canton of Zurich. Does this violate the prohibition of discrimination?

⁰¹ Directive 2009, margin no. 2: In addition to agricultural homes, properties used for agricultural purposes include in particular small homes and properties with the necessary buildings for nurseries, flower nurseries, market gardens or chicken farms. Individual plots of land used for agriculture or forestry are also valued at their capitalized earnings value.

Case 6: Wealth tax brake

1. facts of the case

Hans Goldgrund has been a pensioner since 2019. Prior to his retirement, he operated a gemstone cutting business and traded in diamonds and jewelry through his self-controlled stock corporation. He received an average annual salary of CHF 300,000 as compensation, and the limited company also paid him a dividend of CHF 200,000 every few years.

Hans Goldgrund sold the shares in his self-controlled AG to a third party in 2019 for CHF 8 million. Hans Goldgrund invested all of the proceeds from this sale in gold. Due to the very positive price development of gold, it now has a value of CHF 12 million.

When he retired, Hans Goldgrund also withdrew his entire occupational pension capital as a lump sum (around CHF 2 million). He needs this money to cover his living expenses, as he has little other income apart from the AHV. For this reason, he has only invested a small part of it in securities. The rest is in his bank account.

Based on his recently completed tax return, Hans Goldgrund has the following income and assets in 2023:

Income:      

AHV Fr. 29'400

Imputed rental value Fr. 18'000

Income from securities CHF 12,000

Taxable income (after social security deductions): around CHF 56,800

Assets:

Bank balances CHF 2.5 million

Gold CHF 13 million

Property CHF 1.5 million

Taxable assets CHF 17 million

His provisionally calculated state and municipal tax in Zurich amounts to CHF 106,000.

Factual variant A

Mr. Goldgrund has not sold his public limited company, but has hired a managing director. Thanks to its large and loyal customer base, the business continues to do very well and the public limited company is valued by the canton of Zurich at CHF 8 million in 2023. A dividend was not distributed, although this would have been possible based on the annual profit of around CHF 300,000.

Mr. Goldgrund's income and assets are as follows:

Income:      

AHV Fr. 29'400

Imputed rental value Fr. 18'000

Income from securities CHF 12,000

Assets:

Bank balances CHF 2.5 million

Public limited company CHF 8 million

Property CHF 1.5 million

His provisionally calculated state and municipal tax in Zurich amounts to CHF 75,000.

Factual variant B

Mr. Goldgrund's income and assets are as follows:

Income:      

AHV Fr. 29'400

Imputed rental value Fr. 18'000

Income from securities CHF 12,000

Assets:

Bank balances CHF 300,000

Property CHF 1.5 million

Monet painting Fr. 20 million

Mr. Goldgrund inherited the Monet painting. A market value of CHF 20 million was assumed as part of the division of the inheritance. The painting is not insured, as the insurance policy would be too expensive for Mr. Goldgrund.

His provisionally calculated state and municipal tax in Zurich amounts to CHF 139,000.

Questions

• Mr. Goldgrund's tax advisor argues to the tax authorities that there is confiscatory taxation and that the wealth tax should be reduced accordingly. Do you share this view?
• What would the tax situation be if Mr. Goldgrund did not live in the canton of Zurich but in the canton of Aargau or Bern?
• Does anything change in your assessment in factual variant A?
• Does anything change in your assessment in factual variant B?