Supreme Court Alters Practice on Inter-cantonal Double Tax – Introduction
In a notable shift, the Federal Supreme Court of Switzerland has recently revised its stance on inter-cantonal double taxation, a move that greatly benefits taxpayers.
Historically, individuals and businesses faced significant hurdles in contesting double taxation across cantonal borders.
However, a key ruling from the Federal Supreme Court has now eased these restrictions, providing taxpayers with enhanced avenues to defend against inter-cantonal double taxation.
Background
Intercantonal double taxation occurs when the same income or assets are taxed by more than one canton.
Previously, taxpayers could lose their right to appeal against such double taxation if they had unconditionally accepted their tax liability in one canton despite knowing about a competing tax claim from another canton.
This situation often affected companies relocating their registered offices between cantons, leading to simultaneous tax claims by both the original and new cantons of registration.
For example, if a company moved its registered office from one canton to another but allowed the assessment by the new canton to become legally binding without informing it of a competing claim from the original canton, it could end up being taxed by both cantons.
This resulted in effective double taxation, which was difficult to contest under previous legal precedents.
Case Summary
The landmark ruling delivered on 17 August 17, 2023, and concerned a married couple. They had been living in their own home in the canton of St. Gallen since 2010.
The husband had been working as a self-employed doctor in the canton of Schwyz since 2011.
After deregistering in St. Gallen and registering in Schwyz in 2018, the couple faced assessments by both cantons for the same tax year, leading to double taxation.
Despite the canton of Schwyz assessing the couple in 2020, St. Gallen also issued an assessment for 2018, claiming the couple’s domicile had not effectively changed.
The result was that the couple was taxed as residents in both cantons for the same period. Subsequent appeals against the St. Gallen assessment were unsuccessful, and their request for a revision of the Schwyz assessment was also denied.
The old position
Under the previous legal framework, taxpayers forfeited their right to appeal if they acknowledged their tax liability in one canton while knowing of a competing claim in another.
This forfeiture occurred if the taxpayer submitted to the assessment unconditionally, paid the required taxes without reservation, and did not pursue further legal remedies.
A 2020 Federal Supreme Court ruling emphasized that forfeiture should only occur in cases of clear abuse of rights or actions contrary to good faith, but it still left room for significant challenges for taxpayers facing double taxation.
The new approach
The Federal Supreme Court has now revised this stance.
In its recent decision, the court determined that forfeiture of the right to appeal is no longer a proportionate response to a taxpayer’s conduct in inter-cantonal relations.
The court concluded that the elimination of unconstitutional inter-cantonal double taxation should be refused only in cases of qualified abuse by the taxpayer and where the canton has a legitimate interest in withholding the taxes, even if it has no legal claim under inter-cantonal tax law.
The ruling now restricts the previous practice on forfeiture, making it easier for taxpayers to challenge and eliminate intercantonal double taxation.
Misconduct by the taxpayer will now primarily result in the imposition of costs incurred, rather than a complete forfeiture of the right to appeal.
Practical Implications
The ruling significantly enhances taxpayers’ ability to avoid or contest intercantonal double taxation. Here are some practical steps taxpayers should consider:
- Regular Review of Tax Domicile: Taxpayers should frequently verify that their tax domicile or registered office aligns with their actual situation. This is especially crucial for companies with minimal office space requirements, such as holding or licensing entities.
- Documentation and Transparency: Companies should ensure that their operational decisions and management activities are well-documented and correspond to their registered tax domicile.
- Legal Action: In cases of impending or existing double taxation, taxpayers should promptly pursue legal action to challenge any unjust assessments.
- Avoiding Misconduct: Taxpayers should avoid using letterbox companies, falsifying documents, or misleading tax authorities, as these actions can lead to severe penalties and criminal proceedings.
Supreme Court Alters Practice on Inter-cantonal Double Tax – Conclusion
The Federal Supreme Court’s change in practice represents a significant victory for taxpayers, providing them with better tools to combat inter-cantonal double taxation.
Final thoughts
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