Profit Adjustments in Dual-Contract Structures—The Unclear Legal Basis

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With its new policy on the taxation of real estate developers, the City of Zurich Tax Office sparked a debate in late 2025 regarding the determination of the “correct” sales proceeds for land under Zurich’s real estate gains tax. In the process, a fundamental question has been overlooked: On what legal basis may this proceeds amount be adjusted at all?

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The authors argue that the practice established by the Federal Supreme Court in 2005—and further developed in two subsequent rulings—on which the Tax Office relies does not provide a convincing and consistent answer to this question. Measured against the principle of legality in tax law, three bases come into consideration: the concept of proceeds under Art. 12 of the Federal Tax Act (StHG) or cantonal law, an analogous application of the rules on hidden profit distributions, or the tax avoidance doctrine.

The authors reject the concept of proceeds as the basis for an adjustment. It serves to record the proceeds and not to alter the facts of the case. It may suffice to capture a specific payment by the purchaser, but it does not permit the proceeds to be replaced by a substitute value such as the market value of the land.

In the authors’ view, an analogous application of the rules on hidden profit distributions is also ruled out. While analogical inferences are not generally excluded in tax law, they may not expand either the facts constituting a taxable event or the tax base to the detriment of the taxpayer. This is precluded by the level of legal certainty required by the principle of legality. Art. 127(2) of the Federal Constitution also offers no direct basis for intervention: the provision serves merely as a guideline for official action.

In the authors’ view, revenue adjustments in cases of dual-contract structures remain possible based on the tax avoidance doctrine. However, the substantive and procedural hurdles are high. The revenue shift must be readily apparent even to a person with economic expertise in order for it to be considered wholly unreasonable and peculiar. Furthermore, the tax authorities must prove the tax avoidance. It is not sufficient merely to allege an incorrect allocation of revenue and to place the burden of proof on the taxpayer to the contrary.

Citation: Thomas Hug, Samuel Ramp, Profit Adjustments in Dual-Contract Structures—The Unclear Legal Basis, in zsis) 4/2026, A13, N [...] (publ.zsis.ch/A13-2026)

Quarterly edition 4/2026

1. Introduction

With the publication of its new guidelines on the taxation of real estate developers at the end of 2025, the City of Zurich’s Tax Office sparked a debate in the tax community: How is the “correct” sale proceeds be determined for the purposes of Zurich’s real estate gains tax in dual-contract structures involving a Land AG (owner of the land to be developed) and an affiliated Werk AG (developer and builder of the building)? The focus is on the question of which method should b

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