Citation: Nicole C. Bühler, Muriel Borter, Gianfranco Gambaro, Marco Lechleiter, Profit allocation between property gains tax and profit tax, in zsis) 4/2025, A13, N [...] (publ.zsis.ch/A13-2025)
Real estate companies have an incentive to shift as much profit as possible from the “real estate gains” tax category into the realm of income tax. Instead of handling the purchase of the property, the development of the site, and the subsequent marketing through a single company, these functions are divided among various companies within a corporate group.
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Real estate companies have an incentive to shift as much profit as possible from the “real estate gains” tax category into the realm of income tax. Instead of handling the purchase of the property, the development of the site, and the subsequent marketing through a single company, these functions are divided among various companies within a corporate group. It is important to remember that the proceeds from the sale of the land parcel, the profit from which is subject to real estate gains tax, must correspond to the market value. Since the arm’s-length principle also applies to real estate gains tax, the fees paid to the developer and its profit margin on the project must be in line with market standards.
To determine the appropriate fees and profit margins for the developer (and any other affiliated companies), the residual profit model according to Harbeke/Hug/Scherrer may be used.
Various methods exist for determining the market value of the land portion. According to the Federal Supreme Court, the comparative value method should be used as the primary method. However, if there is a separation between the land and construction costs, the comparative value method reaches its limits. This raises the question of whether methods for determining the relative land value—such as the new location class tables or the residual value method—are more suitable.
Real estate prices in the Canton of Zurich are rising steadily. As a result, real estate developers can now generate very high profits, particularly when selling condominium units, even despite short holding periods. The following chart on building land price indices illustrates how sharply building land prices for multi-family residential buildings with condominiums have increased throughout Switzerland since 2000.<a id="footnote-01" class="footnote" href="#footnote-re
