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Country-by-country reporting (CbCR) is a tax rule that helps governments keep an eye on big multinational companies.
It makes these companies tell the government where they are earning their money and how much tax they are paying in different countries.
This is super important because some companies try to move their profits to countries with very low taxes (often called “tax havens”) so they don’t have to pay as much tax in the countries where they really make their money.
Recently, the European Union (EU) has been working on updating its CbCR regulations, but there are some parts of the new rules that aren’t clear.
That’s why two big accounting firms, KPMG and PwC, are asking for more clarity.
KPMG and PwC are two of the world’s largest accounting firms. They help big companies understand, follow and plan around tax laws.
With the new EU CbCR rules, these firms are concerned that the way the rules are written might confuse companies, especially when it comes to how they should report their data.
The firms are specifically worried about how companies should use XBRL, a special computer language used for reporting financial data.
The rules say companies must use XBRL, but they don’t explain exactly how, which is where the confusion comes in.
If the rules are not clear, companies might report their information the wrong way. This could lead to misunderstandings with tax authorities, fines, or even legal trouble.
For companies, making sure their tax information is correct is important because mistakes can be very costly.
By asking for clearer guidance, KPMG and PwC hope that the EU will help companies avoid these issues and make it easier for everyone to follow the rules.
The EU is expected to listen to feedback from KPMG, PwC, and other organisations before making any final decisions.
Hopefully, they will take this opportunity to provide clearer instructions on how companies should report their data, especially using XBRL.
Even though this might sound technical, it’s actually really important.
Clearer rules will help big companies follow the law and pay their fair share of taxes.
And when everyone pays their fair share, governments can use that money to provide important services like schools, hospitals, and roads.
If you have any queries about this article on CbCR, or other tax matters in general, then please do get in touch.
When companies earn profits in foreign countries, they often face the possibility of being taxed twice: once in the foreign country and again in their home country.
To mitigate this, tax systems around the world, including in the United States, allow for foreign tax credits (FTCs).
FTCs enable companies to offset the tax paid to foreign governments against their domestic tax liability.
However, claiming FTCs isn’t always straightforward, and a recent US Tax Court ruling has provided much-needed clarity on how companies should approach this complex area of tax law.
The US Tax Court recently ruled on a significant case (Varian Medical Systems, Inc. v. Commissioner), involving Section 245A of the Internal Revenue Code, which deals with dividends received from foreign subsidiaries.
The case hinged on how companies should calculate their foreign-source income, which is critical for determining how much of a foreign tax credit they can claim.
In this particular case, a US-based multinational argued that certain types of income should not be included in the calculation of foreign-source income, allowing them to claim a larger foreign tax credit.
However, the court ruled that all types of income, including those that may seem unrelated, must be factored into the calculation.
The case also highlighted the importance of proper documentation and compliance when claiming FTCs, as even small errors in reporting foreign-source income can lead to significant tax penalties.
For multinational companies, this ruling has far-reaching implications.
The court’s decision makes it clear that companies cannot cherry-pick which types of income to include when calculating their foreign tax credits.
Instead, they must take a holistic approach, ensuring that all forms of foreign income are properly accounted for.
Moreover, the ruling underscores the importance of compliance.
Companies that fail to accurately report their foreign income or that miscalculate their foreign tax credits risk being audited by the IRS and could face significant penalties.
In light of this ruling, multinational companies should take immediate steps to review their foreign tax credit calculations.
This may involve working closely with tax advisers to ensure that all foreign income is properly accounted for and that the company is complying with the latest IRS guidelines.
Companies may also want to invest in better tax reporting systems, especially those with operations in multiple countries.
Having the right technology in place can help streamline the tax compliance process and reduce the risk of errors.
The US Tax Court’s ruling serves as a reminder that claiming foreign tax credits is a complex process that requires careful attention to detail.
Companies must ensure that they are following all applicable tax laws and regulations to avoid costly mistakes.
By staying informed and working with experienced tax advisers, multinationals can minimise their tax liabilities while remaining compliant with the law.
If you have any queries about this article on US Tax Court Clarifies Rules on Foreign Tax Credits, or US tax matters in general, then please get in touch.
Transfer pricing refers to the pricing of goods, services, or intellectual property exchanged between different parts of a multinational company.
For example, if a subsidiary in Italy sells products to a subsidiary in Germany, transfer pricing rules determine the price at which these transactions take place.
These rules ensure that companies don’t manipulate internal prices to shift profits to low-tax countries and minimise their tax bills.
In August 2024, the Italian Supreme Court made a landmark decision regarding transfer pricing that is expected to have significant implications, not only for Italy but also for how other countries enforce their transfer pricing rules.
The case involved a multinational company with subsidiaries in Italy and other European countries.
The company was accused of setting artificially high prices for goods transferred between its Italian subsidiary and subsidiaries in lower-tax jurisdictions.
The Italian tax authorities argued that these inflated prices reduced the profits reported in Italy, allowing the company to pay less tax.
The key issue in the case was whether the company’s transfer pricing arrangements complied with the arm’s length principle, a fundamental rule in transfer pricing law.
This principle states that transactions between different parts of a company should be priced as if they were between independent companies.
The Italian Supreme Court ruled in favour of the tax authorities, finding that the company had violated the arm’s length principle.
The court emphasised that tax authorities should scrutinise transfer pricing arrangements to ensure that companies are not artificially shifting profits out of the country.
The ruling is seen as a victory for tax authorities and a warning to companies that Italy is prepared to take a tougher stance on transfer pricing enforcement.
For companies operating in Italy and beyond, this ruling has important implications:
The Organisation for Economic Co-operation and Development (OECD) has been working on transfer pricing guidelines for years, as part of its Base Erosion and Profit Shifting (BEPS) initiative.
This initiative aims to prevent companies from using tax loopholes to shift profits to low-tax jurisdictions.
Italy’s ruling is in line with the OECD’s efforts to ensure that transfer pricing is applied consistently across different jurisdictions.
As more countries adopt these guidelines, companies will need to pay closer attention to how they price transactions between subsidiaries.
This ruling is a clear signal that transfer pricing enforcement is becoming more robust.
Companies with operations in Italy—or any other country with strict transfer pricing rules—should review their pricing policies to ensure compliance.
Working closely with tax advisers is essential to avoid costly penalties and ensure that transactions are priced in accordance with the arm’s length principle.
If you have any further queries on this article on Italy’s transfer pricing decision, or tax matters in Italy more generally, then please get in touch.
A participation exemption is a key tax mechanism designed to avoid double taxation on income earned from foreign subsidiaries.
It allows companies to receive dividends from their foreign investments without being taxed again in the home country.
This exemption is an attractive feature for businesses with a multinational presence, as it encourages cross-border investments while eliminating the risk of double taxation.
Ireland, already known for its business-friendly tax environment, is introducing a new participation exemption as part of its tax reforms.
This is expected to enhance its appeal to multinational companies and investors looking for efficient tax structures within the EU.
Ireland’s low corporate tax rate of 12.5% has long made it a popular choice for multinationals.
Now, with the introduction of a participation exemption, Ireland is aligning itself with other European countries that already offer similar incentives.
The exemption allows Irish-based companies to receive dividends and capital gains from foreign subsidiaries without paying additional tax in Ireland, provided the subsidiary meets certain conditions.
These conditions generally require the subsidiary to be based in a country with which Ireland has a tax treaty and for the Irish company to hold at least a 5% ownership stake in the subsidiary.
This is particularly advantageous for companies looking to repatriate profits from their overseas operations, as they can now do so without incurring a tax burden in Ireland.
The new participation exemption applies under specific conditions, as follows:
This new rule makes Ireland a more attractive location for holding companies that manage international subsidiaries, further boosting its competitiveness in the global tax landscape.
Ireland’s participation exemption is expected to attract even more foreign direct investment, particularly from multinationals looking for an efficient tax regime within the EU.
By eliminating the risk of double taxation on foreign earnings, Ireland offers a compelling proposition for companies with global operations.
Furthermore, this new tax policy could encourage companies to restructure their international holdings to take advantage of Ireland’s favourable tax regime.
As many businesses seek alternatives to the UK post-Brexit, Ireland’s new participation exemption strengthens its position as a key financial hub within the EU.
While the participation exemption is a welcome addition to Ireland’s tax policies, it will need to be balanced with the global trend towards higher corporate tax transparency and compliance.
For instance, the OECD’s Pillar 2 of the Base Erosion and Profit Shifting (BEPS) initiative introduces a global minimum tax of 15%, which could limit the effectiveness of Ireland’s low-tax regime.
Moreover, Ireland’s tax policies have been scrutinised by the European Union in the past, especially regarding state aid and preferential treatment of multinationals.
The participation exemption, while beneficial, will need to comply with these international regulations.
Ireland’s introduction of a participation exemption is a strategic move that will likely increase its appeal as a destination for multinational companies.
By offering a tax-efficient way to manage foreign earnings, Ireland positions itself as a leading hub for international investments.
However, companies will need to ensure that they remain compliant with evolving global tax standards while taking advantage of this new opportunity.
For more information about Ireland Progresses New Participation Exemption, or Irish tax matters more generally, then please get in touch.
The global minimum tax is a concept designed to ensure that multinational companies pay a minimum level of tax regardless of where they are headquartered or where their profits are generated.
It is part of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, specifically within Pillar 2 of the reforms.
The idea is to prevent companies from shifting their profits to low-tax jurisdictions, also known as tax havens, to minimise their tax liabilities.
In 2024, the global minimum tax rate of 15% will take effect, marking a significant milestone in global tax reform.
This change will affect multinational companies operating across multiple jurisdictions and require new strategies to ensure compliance.
Pillar 2 is one of two pillars in the OECD’s tax reform strategy.
While Pillar 1 focuses on reallocating taxing rights, Pillar 2 introduces a global minimum tax rate to ensure that multinational companies pay at least 15% tax on their profits, regardless of where they are based.
This means that if a company operates in a country with a corporate tax rate below 15%, other countries can “top up” the tax to meet the minimum rate.
For example, if a company is headquartered in a country with a 10% corporate tax rate, another country where the company operates can impose an additional 5% tax to meet the 15% global minimum rate.
The introduction of the global minimum tax aims to tackle base erosion and profit shifting (BEPS), where companies move profits to low-tax jurisdictions to avoid paying higher taxes in the countries where they generate income.
This practice has resulted in significant tax revenue losses for many countries, particularly those in the developing world.
The OECD estimates that Pillar 2 will generate an additional $150 billion in global tax revenue each year.
This is expected to reduce the incentive for companies to engage in aggressive tax planning strategies and create a fairer tax system worldwide.
To implement Pillar 2, countries will need to adopt new laws and regulations.
These laws will allow tax authorities to assess whether multinational companies are paying the minimum tax rate.
If a company’s effective tax rate falls below 15%, the country can apply a top-up tax to ensure compliance.
One of the key features of Pillar 2 is the Income Inclusion Rule (IIR), which allows countries to tax the foreign income of a multinational if the foreign jurisdiction’s tax rate is below the global minimum.
Additionally, the Undertaxed Payments Rule (UTPR) ensures that deductions for certain payments are denied if they are made to low-tax jurisdictions.
Multinational companies will need to adapt their tax strategies to comply with the new global minimum tax rules.
This may involve restructuring operations, reviewing transfer pricing arrangements, and ensuring that they have systems in place to accurately calculate their effective tax rate in each jurisdiction.
For companies that have previously benefited from tax havens or low-tax jurisdictions, Pillar 2 could result in higher tax liabilities.
However, the global minimum tax will create a more level playing field, as companies will be less able to shift profits to low-tax countries to avoid paying higher taxes.
The introduction of the global minimum tax under Pillar 2 marks a significant shift in international tax policy.
By ensuring that companies pay at least 15% tax on their profits, regardless of where they operate, the OECD aims to reduce tax avoidance and create a fairer global tax system.
While this change will require companies to adapt, it represents a major step towards addressing the challenges of base erosion and profit shifting.
If you have any queries about this article on OECD Pillar 2, or any international tax matters, then please get in touch.
Base Erosion and Profit Shifting, or BEPS, refers to tax strategies used by multinational companies to shift their profits from high-tax countries to low-tax or no-tax jurisdictions, where they pay less or no taxes.
This practice results in less tax revenue for governments, making it harder for countries to fund public services like healthcare, education, and infrastructure.
The OECD (Organisation for Economic Co-operation and Development) introduced the BEPS initiative to tackle this issue by creating global tax rules that ensure companies pay their fair share of taxes in the countries where they make their profits.
As the global economy became more interconnected, it became easier for multinational companies to shift profits across borders.
Many companies took advantage of loopholes in international tax laws, reducing their tax bills by moving profits to tax havens. This left many countries with significantly lower tax revenues.
In 2013, the OECD launched the BEPS Action Plan, which consists of 15 actions designed to close these loopholes and ensure that multinational companies pay taxes where their economic activities occur.
The BEPS initiative is an important step towards creating a fairer global tax system.
By closing tax loopholes, BEPS ensures that countries can collect the tax revenues they need to fund essential public services.
For companies, BEPS means that they must be more transparent about their operations and comply with stricter rules on where and how they pay taxes.
If you have any queries about this article or any international tax matters then please get in touch.
On 10th July 2024, Taiwan’s Ministry of Finance (MOF) issued a new tax ruling which clarifies the obligations and reporting procedures for both onshore and offshore trustees concerning Controlled Foreign Corporation (CFC) trust income.
This ruling supplements previous guidance by outlining the responsibilities of trustees regarding the settlor or beneficiary’s CFC trust income, starting from the 2024 fiscal year.
Earlier, on 4th January 2024, the MOF had issued a tax ruling which provided a calculation method and guidance for CFC reporting.
This guidance applies to any settlor using shares or capital of a foreign-affiliated enterprise based in a low-tax jurisdiction (the “Shares of Foreign Enterprise in Low-Tax Countries”).
Under Article 92-1 of the Taiwan Income Tax Act, trustees are required to report such holdings.
The latest Ruling further elaborates on the specific procedures trustees must follow when reporting income from such trust assets.
Trustees are now required to report trust income to the MOF under the following conditions:
Trustees must submit a comprehensive report of all trust assets, including but not limited to the property inventory, revenue and expenditure statements, and the statement of trust benefits accrued and payable to beneficiaries.
This requirement pertains specifically to trusts that include Shares of Foreign Enterprises in low-tax jurisdictions.
It’s important to note that while all trust property must be declared, only the CFC trust income is taxed in advance.
The taxation of other trust property remains on a “cash basis.” The MOF is expected to release a CFC filing form for trustees, which will become the standard format for such reports.
Trustees are required to begin reporting the trust income of settlors or beneficiaries from the fiscal year 2024 onwards.
The report for each fiscal year must be submitted by the end of January of the following year, meaning the first report, covering fiscal year 2024, is due by 31st January 2025.
Offshore trustees who are unable to file the report themselves may appoint an agent to assist with the process.
Trustees must apply for a uniform tax ID number from the tax authorities to facilitate the reporting process.
Specific instructions on which tax authorities trustees should apply to will be provided.
Trustees who fail to meet their reporting obligations under Article 92-1 of the Income Tax Act, the CFC rules, or the new Ruling will face penalties under Article 111-1 of the Income Tax Act.
These penalties include fines amounting to 5% of the under-reported or undeclared trust income, with a maximum fine of NT$ 300,000 and a minimum of NT$ 15,000.
Additionally, trustees who fail to accurately file tax withholding returns or issue the necessary documents and certificates will incur a fine of NT$ 7,500.
They must also submit corrected filings within a specified timeframe to avoid further fines, which are calculated as 5% of the current year’s trust property income, subject to the same fine limits.
The new Ruling has significant implications for offshore trustees, who are now required to adhere to Taiwan’s reporting obligations.
Previously, Taiwan’s participation in the Common Reporting Standard (CRS) network was limited, making it difficult for the MOF to access foreign tax information, except through bilateral agreements with countries such as Japan, the UK, and Australia.
Following this Ruling, offshore trustees must review their Taiwanese clients’ offshore asset structures and assess their CFC risks to ensure compliance.
There is some uncertainty about whether trustees need to report income for the first half of 2024, particularly if the trust relationship is terminated shortly after the Ruling’s issuance.
Preliminary discussions with the MOF suggest that if a trust is terminated after 10th July 2024, and a successor trustee takes over, the previous trustee may not be penalised, provided the successor trustee reports the income for the entire year.
Further clarification from the MOF is anticipated.
If a trust has beneficiaries both in and outside of Taiwan, and the trustee cannot confirm the beneficiaries’ tax residency status, they must report all beneficiaries and their respective income to the MOF.
Each beneficiary is responsible for declaring their overseas income based on their residency status.
How the MOF will enforce penalties against foreign trustees without a physical presence or business agent in Taiwan remains to be seen.
There is some ambiguity regarding whether offshore trustees of special purpose trusts need to declare the trust property, especially when no specific beneficiaries are designated.
According to an earlier MOF ruling , if a trust has no specified beneficiaries and the settlor does not retain the right to designate them, the trustee is responsible for reporting the trust’s assets under Article 5-1 of the Estate and Gift Tax Act.
The trustee would also be subject to income tax on the income derived from such trust property.
Thus, if a settlor establishes an offshore special purpose trust that meets these conditions, and there is no income generated during the trust’s term, none of the beneficiaries should be treated as Taiwanese tax residents, and the trustee would not be required to report the trust property.
The recent MOF Ruling on CFC trust income reporting necessitates careful attention to compliance.
Trustees must thoroughly analyse the financial details of the CFC, identify the beneficiaries, and review the trust property to ensure accurate reporting.
It is recommended that anyone potentially impacted by these changes should engage professional assistance.
If you have any queries about this article on Taiwan Issues New Guidelines on Trustee Reporting Obligations, or tax matters more generally in Taiwan, then please get in touch.
In a notable ruling, the Irish Tax Appeals Commission (TAC) has decided in favor of a taxpayer in Ireland’s first-ever transfer pricing case.
The case revolved around transfer pricing adjustments proposed by the Revenue Commissioners (Revenue) concerning the supply of services by an Irish subsidiary (Taxpayer) to its US parent company (Parent), particularly focusing on share-based awards (SBAs) granted to the Taxpayer’s employees by the Parent.
The Taxpayer, under intercompany services agreements, performed sales, marketing, and research and development activities for the Parent on a “cost-plus” basis.
This arrangement meant the Taxpayer charged the Parent a fee based on its costs plus a mark-up. Although the Taxpayer’s financial statements included expenses for SBAs as required by Financial Reporting Standard 102 (FRS 102), the intercompany agreement explicitly excluded these expenses from the cost base used to calculate the charges to the Parent.
The Revenue contended that the Taxpayer failed to demonstrate that the intercompany service fees were at arm’s length, arguing that SBA costs should have been included in the cost base for the markup calculation.
Both parties agreed that the Transactional Net Margin Method (TNMM) was the appropriate transfer pricing method to apply in this case.
The Taxpayer disputed the Revenue’s view, asserting that SBA costs were notional and should not factor into the cost base for determining intercompany charges.
The Taxpayer’s expert witness argued that the economic risk associated with SBAs was borne by the Parent’s shareholders, who effectively diluted their ownership to incentivise the Taxpayer’s employees.
The TAC, relying on OECD guidelines, sided with the Taxpayer.
It considered whether the SBAs created an economic cost for the Taxpayer, ultimately concluding that the Parent bore the risk and administrative burden of the SBAs.
The TAC emphasised that while the accounting treatment of SBAs was correct, it did not reflect the economic reality.
Therefore, the SBAs should be excluded from the Taxpayer’s cost base in accordance with the arm’s length principle.
The Revenue objected to the admissibility of the Taxpayer’s expert reports, claiming they were opinions on Irish domestic law rather than expert economic evidence.
However, the TAC found the expert witnesses credible, independent, and helpful in addressing the appeal’s issues.
The TAC accepted the Taxpayer’s evidence on accounting treatment as uncontroversial.
A contentious point was the 2015 tax return and the four-year statutory time limit for Revenue to raise an assessment.
The Revenue argued the time limit did not apply because the return was insufficient, citing flaws in the transfer pricing documentation.
The TAC, however, stated that a “sufficient” return does not need to align with Revenue’s assessment, as long as the taxpayer provided full and true disclosure.
Consequently, the TAC ruled in favour of the Taxpayer.
This decision holds international significance, diverging from rulings in other jurisdictions such as Israel.
For instance, in the Israeli cases of Kontera and Finisar, tax authorities required that SBA costs be included in the cost base for calculating cost-plus remuneration, despite the subsidiaries not incurring these costs.
This TAC ruling, informed by comprehensive expert testimony and aligned with OECD Transfer Pricing Guidelines, will impact multinational corporations with SBA schemes.
Businesses should consider reviewing their transfer pricing policies in light of this landmark decision.
If you have any queries around this article, the Taxpayer Wins First Transfer Pricing Case, or other tax matters in Ireland, then please get in touch
Double taxation occurs when the same income is taxed in multiple jurisdictions, which can impose significant financial burdens on both individuals and businesses.
To address this issue, the UAE has established a robust legal framework through international tax treaties and specific domestic regulations.
This article delves into the key legislative instruments that mitigate double taxation:
Understanding these regulations is crucial for managing international tax liabilities effectively.
Cabinet Decision No. 85/2022 plays a pivotal role in defining tax residency within the UAE, which is essential for accessing double taxation relief.
The decision outlines the criteria for determining tax residency status, highlighting the following key points:
Entities are deemed tax residents if they are established, formed, or recognized under UAE laws or acknowledged as tax residents by UAE tax laws.
Individuals are considered tax residents if their primary residence and financial interests are in the UAE.
Individuals who spend substantial periods (183 days or more) in the UAE within a 12-month period qualify as tax residents.
Those who spend 90 days or more within a 12-month period and meet specific conditions related to residence permits or nationality may also qualify.
These criteria are critical for determining eligibility for double taxation treaty benefits, thereby reducing international tax liabilities.
Ministerial Decision No. 27/2023 provides detailed guidelines for implementing the criteria set forth in Cabinet Decision No. 85/2022. It elaborates on:
The assessment of whether the UAE is the primary place of residence and center of financial and personal interests includes factors such as habitual presence, occupation, family ties, and management of assets.
Methods for calculating days spent in the UAE, including non-consecutive days, are crucial for establishing tax residency.
The decision considers days spent in the UAE due to unforeseen circumstances, ensuring temporary or emergency stays do not unduly affect tax residency status.
Ministerial Decision No. 247/2023 addresses the issuance of Tax Residency Certificates (TRCs), which are necessary for claiming benefits under international tax treaties.
The decision outlines:
Requirements and procedures for applying for a TRC, including necessary documentation and forms specified by the Federal Tax Authority.
Criteria used by the Authority to confirm an applicant’s tax residency status, ensuring compliance with relevant international agreements.
The format and manner in which TRCs are issued, enabling individuals and businesses to present these certificates to foreign tax authorities to avoid double taxation.
TRCs are vital for leveraging international agreements to mitigate or eliminate double taxation, thereby facilitating more efficient international business operations and personal financial planning.
The UAE’s legal framework is meticulously designed to address the complexities of double taxation, providing clarity and certainty for taxpayers.
By understanding and applying the provisions of Cabinet Decision No. 85/2022, Ministerial Decision No. 27/2023, and Ministerial Decision No. 247/2023, individuals and businesses can navigate their international tax obligations more effectively.
This comprehensive approach ensures that the UAE remains an attractive and competitive environment for both local and international stakeholders.
If you have any queries on this article about the UAE’s Double Tax Framework, or UAE tax matters more generally, then please get in touch.
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.
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.
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.
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 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.
The ruling significantly enhances taxpayers’ ability to avoid or contest intercantonal double taxation. Here are some practical steps taxpayers should consider:
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.
If you have any queries on this article on Supreme Court Alters Practice on Inter-cantonal Double Tax, or other Swiss tax matters, then please get in touch.