Tax News – December 2013 [uniquement en anglais]

16 Pages·2013·1.1 MB·English

December 2013 Tax News
In this issue
3 Application of notification
procedure for dividend dis-
tributions – charging default
interest in cases of late
declaration
Daniel Gentsch,
Marco Mühlemann
4 Indirect partial liquidation:
quo vadis?
Roland Böhi, Anna Eldring
5 SME special: The “Mid-Cap”
approach leads to success on Dear Reader,
transactions
Roland Böhi
Even as we approach the end of the year, tax issues could still scarcely be more varied.
6 Ernst & Young Transfer Pricing Since the controversial ruling by Switzerland›s Supreme Court on 19 January 2011,
Survey the Federal Tax Administration has, in a number of cases, refused to use the declaration
Markus F. Huber, Fabian Berr
procedure for dividend distributions, instead maintaining the practice of charging default
7 Offsetting tax losses after the interest when companies miss the 30-day deadline for declaration. Not even intensive
assessment of a taxable profit
talks between the Swiss Institute of Certified Accountants and Tax Consultants and
René Röthlisberger,
the FTA have been able to change things. In recent weeks, the FTA has begun issuing
Marco Mühlemann
countervailable rulings on default interest owed in pending and, for the most part,
8 Offsetting tax losses after a
suspended cases. We urgently recommend companies that receive such notifications to
temporary period of inactivity
Marco Mühlemann consider submitting an appeal to safeguard their legal position. The appeal should be
submitted within 30 days, be thoroughly prepared, and include all pertinent arguments
9 New ruling from the Zurich
Tax Appeals Court on offset- against the levy of default interest.
ting operating losses against
real estate capital gain In this newsletter, you can also read more about indirect partial liquidation and awkward
Urs Schüpfer, Sereina Mader questions on interpretation from everyday practice. We tell you about a new product that
11 New rules on telecommunica- allows us to provide small and medium enterprises specifically with pragmatic, targeted
tions, broadcasting and elec- support during due diligence. We also present our latest survey on transfer prices, and
tronically supplied services in take a close look at two key rulings of the Administrative Court of the Canton of Zurich
the EU from 2015
concerning offsetting losses. In another current case, the Tax Appeals Court for the
Susanne Gantenbein,
Canton of Zurich was asked to rule on the practice of offsetting operating losses against
Fabian Thumm
property gains. Against the backdrop of the prevailing laws, we analyze the decision and
clarify its position in the context of ongoing discussions and the legislative process.
The VAT package 2015 will bring in several important new rules applicable to
telecoms supplies, radio/TV services and other electronically supplied services 12 The Free-Trade-Agreement between
Switzerland and China
in the EU, which will mainly affect the place of supply in certain cases and the
Dr. Lars Henschel, Oliver Hulliger,
development of the “one-stop shop” system.
Clara Bodemann
We will also be turning our attention to Asia, where Switzerland›s free trade 13 Malaysia to introduce GST at 6% from
1 April 2015
agreement with China is set to come into force in the second half of 2014.
Susanne Gantenbein, Fabian Thumm
Switzerland is only the second European country after Iceland to sign such an
agreement with China, which will afford both signatories better market access 14 Federal Supreme Court ruling in inter-
cantonal double taxation of one-off
while improving their respective export positions. It will also give Switzerland
employer remuneration for employees
the edge over competitors who have yet to conclude such an agreement with taxed at source
China. On 1 April 2015, Malaysia will be introducing a new VAT regime in the Kornel Wick, Dr. Christian Rossmann
form of a goods and services tax (GST) of 6%, so we advise clients in the
15 Overview of amendments to selected
Malaysian market to consider the implications of this new tax in good time. cantons’ tax laws
Divers authors
In this issue, we also look at a current Federal Supreme Court ruling on inter-
cantonal double taxation of employees taxed at source, and summarize the key
developments in cantonal tax legislation.
Finally, we would like to wish you and your families a peaceful Christmas and a
good start to 2014.
We hope you find this informative and entertaining reading.
Dr. Philip Robinson
Managing Partner Tax and Legal
[email protected]
Application of notification procedure for dividend distributions –
charging default interest in cases of late declaration
Daniel Gentsch, Partner, International Tax Services, Zurich, [email protected]
Marco Mühlemann, Senior Manager, Business Tax Services, Zurich, [email protected]
The Swiss Federal Tax 2011 was materially wrong and should regard, we advise our clients to submit
Administration continues charging be corrected by means of another Federal all relevant arguments against the levy of
default interest and issues Supreme Court ruling. Additionally, in default interest.
January 2011, the Federal Supreme Court
appealable decisions.
did not comment on the issue of levying
default interest and the latest practice
reflects solely the opinion of the FTA.
On 19 January 2011, the Federal Supreme
Unfortunately, the meetings held
Court ruled that the 30-day period in Art. 5
between the Swiss Institute of Certified
sect. 1 of the Tax Relief Ordinance is an
Accountants and Tax Consultants and the
absolute limitation period. If this deadline
FTA did not yield positive results for tax-
is missed, then the withholding tax claim
paying companies. The FTA informed the
can no longer be fulfilled through the
Swiss Institute in writing in October that a
application of the notification procedure.
general waiver of the default interest was
According to the ruling, the refund
not possible. According to the FTA, there
procedure must be chosen, provided all
has been no actual change in practice
material prerequisites are met.
and there continues to be no basis for
The aforementioned judgment led to equal treatment of taxpayers in cases of
considerably more restrictive practices illegality.
on the part of the Swiss Federal Tax
Over the past few weeks, the FTA has
Administration (FTA). The FTA has insis-
begun successively issuing appealable
ted since on strict adherence to the 30-
decisions on default interest owed in
day period and has refused application of
pending and, for the most part, suspen-
the notification procedure in a substantial
ded cases. The duty to pay the default
number of cases. Furthermore, the FTA
interest is decided based on the individual
has in some cases billed for significant
circumstances.
amounts of default interest if the withhol-
ding tax was not declared within 30 days It is imperative for companies that receive
or paid to the FTA in good time. an appealable decision regarding default
interest owed to review the option of
The Swiss Institute of Certified
submitting an appeal to safeguard their
Accountants and Tax Consultants has held
legal position. Both the FTA and the
various meetings over the past two years
advising practice expect the issue of
with representatives of the FTA in order
default interest to be brought before the
to, at the very least, find an acceptable
Federal Administrative Court and Federal
transitional solution for companies. In the
Supreme Court. It is reported that the
past, the FTA did not object regularly and
FTA has an interest in a court ruling on
without exception when withholding tax
the levy of default interest in cases where
declarations were submitted late. In this
the 30-day deadline is not adhered to.
respect, the systematic switch to the
30-day deadline represents a change Any appeal must be submitted within 30
in practice which should have been days. If this deadline is missed the default
communicated by the FTA in light of the interest is irrevocably owed and will not
far-reaching consequences and principle be reimbursed, even in the case of a posi-
of good faith. Moreover, in practice there tive Federal Supreme Court ruling. Since
have been a number of cases in which the not all cases are identical in detail (e.g.,
FTA did not object to a breach of the 30-day application of the notification procedure
deadline even after 19 January 2011, based on a double taxation agreement vs.
meaning that some companies received declaration process based on art. 15 of
better treatment than other taxpayers. the Swiss-EU Taxation of Savings Income
Prevailing opinion of leading scholars Agreement), the affected companies
is still that the ruling from 19 January should prepare their appeal early. In this
Tax News EY December 2013 3
Indirect partial liquidation: quo vadis?
Roland Böhi, Partner, Transaction Tax, Zurich, [email protected]
Anna Eldring, Manager Transaction Tax, Zurich, [email protected]
The tax law governing the subject Tricky practice questions with regard to has been evident since the law entered
of so-called indirect partial liqui- interpretation into force that the tax authorities tend
dation has been in force since 1 to always assume the presence of such a
In practice, various questions with regard
cooperation as stipulated by the law. The
January 2007. In practice, the law to interpretation of the law arise, in parti-
tax authorities seem to only accept that
often presents tricky questions cular as far as the definition of a harmful
this criterion is not met in indisputable
with regard to interpretation. The distribution and, thus, the determination
cases where a cooperation would be
current practice applied by the tax of non-operationally required assets and
very hard to construe (e.g. if reserves
authorities tends to overreach and legally distributable reserves at the time are eliminated due to a reorganization of
of the transaction is concerned. This is
is partially not in accordance with the buyer’s group several years after the
due to the fact that the taxable basis for
the wording of the law. transaction). However, it should be noted
indirect partial liquidation is determined
that even in such seemingly unambiguous
as the smallest of the following figures:
cases it is to be expected that some
• non-operationally required assets cantons will take a different position.
Background and definition
available at the time of the transaction,
Capital gains on the sale of participations
held as private assets of a Swiss tax- • legally distributable reserves of the Conclusion and recommendation
resident individual are generally tax target according to the last Swiss-GAAP Each case is different and there is no
exempt. Dividend income, on the other stand-alone balance sheet prior to the general Swiss-wide solution in place. In
hand, is treated as taxable income, transaction, transactions where the target is sold by
a Swiss tax-resident individual it is highly
whereby since 1 January 2011 a partial • amount of the actual harmful
recommended to involve a tax advisor
tax exemption and/or partial tax rate distribution (within five years after the
and review potential tax planning ideas
reduction may apply. In the past, this transaction),
as early on in the process as possible.
distinction has led to a retention of legally
• sales price of the target. In order to obtain legal certainty, a
distributable reserves if a sale of the
company was envisaged, leading to a sale The figure that gives rise to most of the corresponding upfront tax ruling request
of a “full wallet”. discussions In practice is the determina- should be filed with the competent tax
tion of non-operationally required assets. authorities. In addition to a corresponding
The indirect partial liquidation issue as This is due to the fact that the other three indemnity clause in the share purchase
written into law in art. 20a para. 1 lit. figures generally seem to be unambi- agreement it should be ensured during
a of the Direct Federal Tax Act was the guously identifiable. Recent experience, the negotiation process that the seller
result of extensive case law as created by however, has shown that the discussions is actually protected for the subsequent
the Swiss Federal Supreme Court on the extend more and more frequently also 5 years in terms of the buyer’s expected
subject of tax avoidance in this area. The to the amount of distributable reserves solvency in the mid-term. It should fur-
law states the conditions under which, at the time of the transaction. The ther be borne in mind that the indirect
provided they are cumulatively met, a apparent position of some cantons is partial liquidation issue applies also
tax-exempt capital gain may retroactively that hidden reserves must be taken into on sales of participations in non-Swiss
be requalified as taxable income, namely: consideration not only when determining targets as long as they are sold by a Swiss
• Transfer of a participation of at least the non-operationally required assets tax-resident individual.
20% (if shareholders with holdings of but even when determining the amount
less than 20% cooperate with respect of distributable reserves; a position not
to the sale of their investments, the covered by wording of the law.
shareholdings are cumulated), It is undisputed that distributions from
• sale from the private assets of the sel- profits generated after the transaction
ler to the business assets of the buyer, are not harmful. It is, however, controver-
• within 5 years following the sale, dis- sial whether this applies to operating pro-
tribution of non-operationally required fits only or also to extraordinary profits
assets from legally distributable reser- and whether it is relevant for the latter
ves to the buyer that were available whether they originate from operating or
and could have been distributed already non-operating assets.
prior to the transaction, With regards to the criterion of the
• distribution in cooperation with the seller. cooperation between buyer and seller, it
Tax News EY December 2013 4
SME special: The “Mid-Cap” approach leads to success on transactions
Our proven due diligence products are complemented by an SME-specific product
Roland Böhi, Partner, Transaction Tax, Zurich, [email protected]
In the M&A business of the big The customized transaction solution The typical “Mid-Cap” due diligence
financial and corporate investors for SME report and its potential
it is nowadays common practice Under the label “Mid-Cap” EY provides an The contents of the report includes
integrated analysis that concentrates only the relevant topics and issues for your
to perform extensive due diligence
on really important questions for SME com- decisions and describes the results
processes for various topics.
panies. This product is built in order to of our work but not the approach. It
These are then often viewed by
fulfill clients’ budget expectations and is summarizes what we have done, provides
third parties and are typically
highly competitive. The due diligence report the necessary information in an appendix
quite detailed; furthermore, third is quite compressed and very focused. EY and provides directly usable results for
parties may rely on it. But if small offers this approach for financial, tax and your SPA negotiations and purchase
and mid-cap companies go for legal services. However, if the financing price determinations. In summary, this
acquisitions, they want a pragmatic banks and / or minority shareholders prod-uct is similarly set-up to a SWOT
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If the client then
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“yellow” world
Tax News EY December 2013 5
Ernst & Young Transfer Pricing Survey
Markus F. Huber, Partner, International Tax Services, Geneva, Switzerland, [email protected]
Fabian Berr, Manager, Transfer Pricing, Zurich, Switzerland, [email protected]
In 2013, Ernst & Young conducted • Transfer pricing is posing an increased Unsurprisingly, the survey also reveals
again a transfer pricing survey reputational risk to companies. Media that most companies place importance
of almost 1,000 multinational coverage of high-profile cases and on complying with the relevant transfer
initiatives in a number of countries and pricing rules. 70% of companies claim to
enterprises.1 The survey indicated
by the OECD mean that transfer pricing be either fully compliant with the rules
that most companies perceive risk
is also perceived as a key issue by the in every country in which they operate
management as a top priority for
public at large. or at least fully compliant wherever they
transfer pricing and are paying
consider transfer pricing to be high-risk.
particular attention to rapid-growth The impact of this shift is also evident in However, this is at odds with the finding
markets. other survey findings: that only 20% of companies monitor the
impact of transfer pricing on financial
• 47% of companies reported that they
results either on a real-time or monthly
have experienced double taxation as a
Ernst & Young has regularly surveyed basis, which would enable them to take
result of a transfer pricing adjustment
multinational enterprises on transfer prompt corrective action where necessary.
following a tax audit.
pricing since 1995. The survey provides a
On the basis of the survey findings, multi-
snapshot of how multinational enterprises • 24% of companies have been subject
national enterprises are advised to assess
are navigating and adapting to changes to penalties in the last three years
whether their intercompany transactions
in the transfer pricing environment. following a transfer pricing audit.
comply with the arm’s length principle,
878 multinational enterprises across 26
• 28% of companies report unresolved to review their transfer prices on a
different markets responded to the latest
transfer pricing examinations (compa- regular basis and to maintain appropriate
survey, including 637 parent companies.
red to only 17% in the 2010 survey). documentation.
The survey shows a clear shift toward • 15% of companies have referred a
prioritizing risk management in transfer transfer pricing case to litigation in the
pricing for the majority of multinational past year.
enterprises. Two thirds of respondents
identified risk management as a top Rapid-growth markets are a main area
priority, compared to only fifty percent of of focus for respondents. 30% of respon-
respondents to the last survey in 2010. dents operating in the BRIC countries and
The main reasons for this shift are as Africa said that these were their No. 1
follows: or No. 2 priority areas when it comes to
managing transfer pricing. One explana-
• Transfer pricing is increasingly viewed by
tion for this increased focus is that these
tax authorities as a “high-risk” tax issue.
countries increasingly introduced strict
• Transfer pricing is receiving greater transfer pricing documentation require-
1 EY 2013 Global Transfer Pricing Survey,
scrutiny from tax authorities in rapid- ments. Despite this, 74% of companies
Navigating the choppy waters of internatio-
growth markets, coupled with a more indicated that they did not employ any nal tax, abrufbar unter http://www.ey.com/
intense examination of international tax full-time transfer pricing personnel in GL/en/Services/Tax/2013-Global-Transfer-
issues generally. those jurisdictions. Pricing-Survey
Tax News EY December 2013 6
Offsetting tax losses after the assessment of a taxable profit
René Röthlisberger, Partner, Business Tax Services, Zurich, [email protected]
Marco Mühlemann, Senior Manager, Business Tax Services, Zurich, [email protected]
The Administrative Court of the binding assessment is not CHF 0. Since in Conclusion
Canton of Zurich has ruled that this case a final assessment for cantonal In view of the principle of total income
an assessment of a taxable profit and municipal tax had been made for and that of taxation by economic per-
2004 on a taxable profit, losses could formance, this ruling is to be welcomed.
does not necessarily mean that
no longer be offset in subsequent tax The government should not benefit
unclaimed tax losses carried
periods, in spite of the more recent ruling unduly from the errors and omissions of
forward may never be offset.
from the Federal Supreme Court. taxpayers by taxing more income than is
envisioned by the legislation.
Change in practice of the
The carrying forward of tax losses from
In its ruling of 12 June 2013 Administrative Court of the Canton of
previous years not yet offset is, however,
(SB.2012.00105), the Administrative Zurich
permissible only where there has been
Court of the Canton of Zurich held that The Administrative Court of the Canton of
no wrongful conduct or breach of duty.
tax losses could be offset even though the Zurich declined to endorse the Cantonal
Regrettably, the Administrative Court
company concerned had been assessed in Tax Administration’s assessment and held
did not provide a definition of the term
the preceding period with a taxable profit. that the deduction of the previous years’
“breach of duty” in its ruling, stating
The Tax Administration of the Canton losses in the tax returns for 2005, 2006
only that in this case, which is somewhat
of Zurich has appealed the ruling to the and 2007 was permissible.
unique, the taxpayer could not have been
Federal Supreme Court.
Prevailing opinion and case law indicate expected to appeal the 2009 ruling of
On 30 November 2004, A. AG assumed that losses carried forward must always the Administrative Court to the Federal
all assets and liabilities of C. AG in the be offset in the next period of profit. Supreme Court. In our opinion this
course of a merger. In its 2004 tax return, Anything else must result in a reduction leaves an open question as to whether an
the company deducted C. AG’s tax losses of the tax loss carried forward equal to erroneous or negligent non-declaration
carried forward from its reported net the taxable net income against which the of losses carried forward in the tax return
income for the 2004 financial year. On loss could have been offset. On this basis, should be interpreted as a breach of duty,
18 November 2009, the Administrative losses which could have been offset, but raising the possibility that the offsetting
Court rejected the deduction of the loss were not, are deemed offset. could be denied after all.
for the 2004 tax period, both for the can-
tonal/municipality tax and for the direct However, the Administrative Court’s
federal tax. A. AG appealed the ruling of practice to date, by which all losses in
the Administrative Court to the Federal previous years are deemed offset in the
Supreme Court with respect to the direct event of a positive assessment, is no lon-
federal tax, but did not contest it with ger accurate in view of the new rulings on
respect to the cantonal and municipality the balance between the principle of total
tax. On 4 January 2012, the Federal income and the principle of periodicity.
Supreme Court held that deduction of the A violation of the principle of immediate
preceding years’ losses was permissible. loss offsetting should not yield advan-
This decision attracted plenty of coverage tages to the taxpayer. Equally, however,
in tax publications. it should not put him at a disadvantage
compared with what his position would
In its tax returns for 2005, 2006 and
have been had he acted in accordance
2007, A. AG deducted the tax loss carried
with the rules, assuming there has
forward from C. AG, reduced by the 2004
been no wrongful conduct or breach of
profit, as a result of which net income in
duty. It follows that in the course of an
each of the three tax periods was CHF 0.
assessment under normal procedure
After the Federal Supreme Court’s ruling
the taxpayer must have the opportunity
of 4 January 2012, the deduction of the
to officially claim and evidence any tax
tax losses was permitted with respect to
losses carried forward and not yet offset.
the direct federal tax. However, it was
refused for cantonal and municipality A. AG’s decision not to appeal against
tax on the basis of an earlier ruling from the Administrative Court’s ruling of 2009
the Administrative Court of the Canton does not constitute a wrongful act or
of Zurich, with offsetting in future tax breach of duty. The losses offset in the
periods generally being ruled out in tax periods 2005, 2006 and 2007 must
cases where the taxable profit in a legally therefore be permissible.
Tax News EY December 2013 7
Offsetting tax losses after a temporary period of inactivity
Marco Mühlemann, Senior Manager, Business Tax Services, Zurich, [email protected]
The Administrative Court of the its offsetting practices. Article 67 of the themselves, during an assessment of how
Canton of Zurich has confirmed Swiss Direct Federal Tax Act (FTA) does the tax-liable party has filed its taxes, be
the permissibility of offsetting tax not contain any corresponding provision called peculiar in regard to possible tax
that make such offsetting of tax losses evasion. However, it is true that the tax-
losses after temporary inactivity and
dependent on the presence of business liable company’s tax loss carry-forwards
resumption of business activities.
operations or any kind of activity. Given can be rendered applicable again in this
that Article 5 par. 1 of the Mergers Act manner towards decreasing the tax bur-
states that even companies that are den, as long as they have not yet expired.
In its ruling of 22 May 2013 (SB.2012.
formally in the middle of liquidation In the given circumstances of this case,
00150), the Zurich Administrative Court
can participate in mergers as well as this is above all a result of the fact that
confirmed the permissibility of offsetting
the Federal Supreme Court’s ruling of 4 the refinancing payments in 2006 are to
losses although the tax-liable company
January 2012 that did not rule out – in be qualified as non-taxable shareholder
concerned had suspended its business
such cases – offsetting losses for tax contributions and do not influence the
activities for a period of about four years.
purposes within the meaning of Article 67 offsetting of losses for tax purposes.
The ruling has since been appealed to the
FTA, offsetting certainly must be permis-
Swiss Federal Supreme Court, which has
sible for companies that resume business Conclusion
not yet ruled on the case.
activities after a period of inactivity and The Zurich Administrative Court’s
The ruling concerns A. AG, which was in- would like to offset their own tax losses ruling and its unambiguous reasoning
corporated in January 2001 as a holding (arising from earlier business activities) are to be welcomed. In practice, other
company. After the company suffered against profits. cases are known in which the Zurich
major losses in 2001 and 2002, the hol- Tax Administration has made loss
In addition, the Administrative Court did
ding activities were discontinued. A. AG offsetting dependent on a requirement
not see any tax evasion in the transac-
was inactive from 2003 to 2006. Leading of active operations not stipulated by
tion. The procedure adopted by the group
up to a planned new shareholding acqui- any legislation or has attempted to deny
in transferring business operations to
sition, the company was refinanced in a loss offsetting using other, at times
a refinanced company within the group
tax-neutral manner as regards corporate rather flimsy or spurious arguments. This
is not unusual or improper let alone
income tax by the shareholder in the fis- restrictive practice is not intended by
peculiar, the Court specified. It also found
cal year 2006. However, the shareholding law-makers and this ruling was right in
the lower court’s reference to A. AG’s
acquisition did not actually take place. not upholding it.
formerly different (holding) activity and
In June 2007, A. AG changed its compa- its temporary inactivity to be a flawed We hope that the Federal Supreme Court
ny purpose and acquired a debt-collecting attempt to justify its accusation of tax will confirm all aspects of the Zurich
business from a company within the evasion. As demonstrated, these two Administrative Court’s ruling and not
group. The 2007 fiscal year ended with circumstances do not justify denying the issue another ruling with technically
another loss. In the 2008 / 2009 fiscal company’s offsetting of tax losses based weak reasoning motivated by an aim to
year, A. AG made a profit for the first on Article 67 FTA and cannot in and of increase tax revenues.
time. The corporation offset its tax losses
carried forward from the years 2002 to
2007 against these profits.
As part of the appraisal and appeal
procedure, the Tax Administration of the
Canton of Zurich only admitted the tax
loss from the year 2007 for offsetting
purposes. A. AG then appealed this to the
Zurich Tax Appeals Court, which confir-
med the Tax Administration’s decision,
stating that it considered the procedure
chosen by A. AG to be tax evasion.
Administrative Court’s ruling
The Zurich Administrative Court
confirmed the principle and ruling of the
lower court that the tax-liable company’s
inactivity does not stand in the way of
Tax News EY December 2013 8
New ruling from the Zurich Tax Appeals Court on offsetting
operating losses against real estate capital gain
Urs Schüpfer, Partner Business Tax Services, Zurich and Basel, [email protected]
Sereina Mader, Manager Business Tax Services, Basel, [email protected]
The Zurich Tax Appeals Court has the offsetting of the losses for companies • Real estate capital gain in the canton of
recently ruled that companies operating solely within the canton Zurich, Zurich
headquartered in the canton whereupon the ruling was based on a • Overall loss
case with the following circumstances:
of Zurich may offset operating
losses against real estate capital
The facts ZH-AG
gain realized in the canton of
Zurich providing that those losses • Office headquartered in the canton of
Zurich
are generated by permanent
establishments outside the • No permanent establishments outside
ZH
canton of Zurich. However, since of the canton
Permanent
this ruling has not yet become • Real estate capital gain in the canton of establishments
final, companies are advised to Zurich
conduct a detailed analysis of • Overall loss
Sale with profit
real estate capital gain realized
OVERALL LOSS
within the canton of Zurich until
ZH-AG
comprehensive loss offsetting is
The good news first: the Zurich Tax Appeals
officially introduced1.
Court concluded that in a situation where
a company headquartered in the canton
Clear Federal Supreme Court rulings ZH of Zurich incurs losses in permanent
concerning companies headquartered establishments outside the canton of
outside the canton of Zurich and com- Zurich, it may offset those losses against
panies solely operating within the canton the Zurich real estate capital gain.
The Federal Supreme Court confirmed not
Sale with profit According to the Zurich Tax Appeals
so long ago that intercantonal companies
Court, the concerned Zurich-based com-
must be allowed to offset operating losses OVERALL LOSS
pany has to qualify as an intercantonal
against real estate capital gain. The ruling
company, which is subject to taxation in
was based on a case with the following There are, however, many setups which
another canton on the basis of their per-
circumstances: differ from those covered by these
manent establishments2. In such cases,
Federal Supreme Court rulings and on the
the Zurich tax authorities must allow
The facts basis of which the Zurich tax authorities
the offsetting of the losses. However,
• Office headquartered outside the have rejected the offsetting.
only this part of the losses which is not
canton of Zurich
attributable to the canton of Zurich may
• Permanent establishments be offset against the real estate capital
Good news for companies
• Real estate capital gain in the canton of headquartered in the canton of Zurich gain realized in the canton of Zurich.
Zurich However, a recent decision from the
• Overall loss Zurich Tax Appeals Court shows that
before the practice of offsetting operating 1 As discussed in the article “Offsetting of losses
losses against real estate gain is officially within a canton – the canton of Zurich changes
LU-AG introduced in the canton of Zurich, it after all” in EY News (June 2013) the canton
of Zurich is planning to introduce – at the
must be extended to other setups. In the
earliest 1 January 2015 – a system of offsetting
most recent case, the Zurich Tax Appeals
operating losses against real estate capital
Court was called upon to examine the gain also for companies operating solely
ZH following circumstances: within the canton.
Permanent
2 Under Swiss tax law; a permanent establish-
establishments
The facts ment is any fixed business premises in which
the operations of a company or profession are
• Head office in the canton of Zurich
Sale with profit partially or wholly carried out. Permanent
• Permanent establishments outside the establishments include in particular branches,
The Federal SOuVpEreRmAeL LC oLuOrSt Shas rejected canton of Zurich production facilities and sales points.
Tax News EY December 2013 9
Accordingly, companies are required to have a permanent establishment outside Tax Appeals Court, the last word on that
calculate the proportion of losses realized the canton of Zurich as defined by the case has not been given. It therefore
outside the canton of Zurich, even though provisions of tax law, the tax authorities remains to be seen whether other courts
standard practice using the total loss are not obliged to allow the offsetting will likewise rule in favor of companies
offsetting method usually omits the loss of the losses for Zurich-based property headquartered in the canton of Zurich or
allocation across the cantons. dealers or real estate companies, because not.
such companies are merely subject to
In its reasoning, the Zurich Tax Appeals Until the law is changed, every property
taxation outside the canton of Zurich due
Court expressly stated that links and sale within the canton of Zurich should
to property in other cantons.
connections with other cantons are be analyzed from case to case to ensure
insufficient to qualify for offsetting not to miss the opportunity to offset the
operating losses against real estate Further developments remain to be losses against the real estate capital gain.
capital gain realized in the canton of seen – safeguard opportunities
Zurich for a company headquartered in Since the Zurich tax authorities have
the canton of Zurich. As companies must not accepted the ruling from the Zurich
Tax News EY December 2013 10