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view in original language (German)The determination of tax domicile and the delimitation of permanent establishments are among the most challenging issues in intercantonal and international corporate tax law - especially in constellations with home offices, cross-border infrastructures or competing cantonal tax jurisdictions. Using practical case studies, Philipp Betschart and René Matteotti show how the place of effective management is to be determined, when home office activities constitute a permanent establishment and how profits are to be separated internationally according to the Authorized OECD Approach. The importance of sovereign rulings in the assessment procedure and revision claims in the case of intercantonal double taxation are also dealt with. The solutions provide you with the necessary tools to confidently assess jurisdiction and separation issues and to recognize tax risks at an early stage.
A AG is headquartered in Engelberg (Canton of Obwalden). At its headquarters, it has only a post office box.
A is the sole shareholder, sole member of the board of directors, managing director, and sole employee of A AG. He resides in the city of Zurich.
As managing director of A AG, A advises professional soccer players, soccer clubs, and associations. A is usually on the road for this work and thus operates in various locations both domestically and abroad.
Furthermore, A AG has rented a room in the city of Zurich—separate from the managing director’s private residence—which is, however, unsuitable for business use. In addition, various restaurant expenses have been incurred in the city of Zurich and the surrounding area.
A GmbH is headquartered in the Canton of Lucerne. On June 2, 2025, the Canton of Lucerne issued a final assessment of the 2023 cantonal and municipal taxes.
In July 2025, the Canton of Zurich initiated a tax jurisdiction proceeding. As part of this proceeding, the Canton of Zurich determined that the actual management and thus the unlimited tax liability of A GmbH in 2023 was located in the Canton of Zurich. The tax jurisdiction decision was issued on September 15, 2025, and became final without being challenged.
Consequently, on February 20, 2026, the Zurich Cantonal Tax Office issued the assessment decision for the 2023 state and municipal taxes.
A GmbH is filing an objection to the assessment decision, arguing that the Canton of Zurich has no jurisdiction whatsoever to levy the 2023 cantonal and municipal taxes.
A AG is headquartered in the Canton of Zug. For the tax periods 2015 through 2018, it was definitively assessed by the Canton of Zug for cantonal and municipal taxes in the years 2016 through 2019 (assuming unlimited tax liability in the Canton of Zug).
On December 8, 2020, the Canton of Zurich initiated a tax jurisdiction proceeding. In a jurisdictional decision dated May 12, 2022, the Zurich Cantonal Tax Office determined that the actual management of A AG was located in the Canton of Zurich from 2015 to 2018 and that A AG was therefore subject to unlimited tax liability in the Canton of Zurich. An objection and an appeal against this decision were dismissed (decision of the Tax Appeals Court dated January 27, 2023; final on March 1, 2023).
On May 16, 2023, A AG filed a request with the Tax Administration of the Canton of Zug seeking a revision of the tax assessments for 2015 through 2018.
Z AG is a stock corporation headquartered in Germany. It provides consulting, project, and IT services to clients in Germany, Switzerland, and other countries. It does not maintain its own business premises in Switzerland and, in particular, does not operate under a business address in Switzerland. There is no formal branch or subsidiary there.
Z AG employs A as a salaried employee. A resides in Riehen, BS, and has a private apartment there that is equipped with the tools necessary for the performance of his professional activities, in particular an internet connection, a laptop, a company phone, and VPN access to Z AG’s IT system. The apartment is not used by Z AG as a business address, either internally or externally, nor does the company contribute to the costs.
A regularly works at Z-AG’s usual locations and also undertakes business trips. In 2024, he performs his work from his apartment in Switzerland for three consecutive months because he had to provide intensive care for his elderly mother during this period.
Since 2024, A has been working regularly from his home in Switzerland one to two days a week. The use of the home office is arranged in consultation with Z-AG at A’s request for personal reasons.
Since 2024, A has been performing his work from his home in Switzerland for approximately 80% of the time, or four days a week, in coordination with his employer. In doing so, he serves several clients of Z-AG based in Switzerland, visits them regularly, and conducts on-site meetings as well as project-related activities.
Contrary to the international scenario described above, Z-AG is headquartered in Kriens (LU). The company provides its services to clients in various cantons of Switzerland and maintains no business premises outside the canton of Zurich.
A. is resident in Germany and subject to unlimited income tax liability there. Since 2003, he has operated a taxi company as a sole proprietor. This company is registered in the Commercial Register of the Canton of Thurgau. The business address listed is the headquarters of the taxi dispatch center in X (TG).
The taxi dispatch center is a cooperative that functions as a radio dispatch center for independent taxi owners and through which ride requests are coordinated and arranged. A. is a member of this cooperative. According to Art. 8 of the bylaws, members are obligated to make use of the cooperative’s facilities whenever possible (duty of loyalty).
During the years in question, A. was a member of the taxi dispatch center and had access at all times to its premises, which consisted, among other things, of an office space and a separate room for the dispatch center employees employed by the taxi dispatch center. The office space was equipped with three desks (each with a PC, monitors, and a telephone), one of which was primarily used by A. At this desk, A. carried out all the preparatory work for the bookkeeping and the Swiss tax returns—which were prepared by a Swiss tax consulting firm—once or twice a week. Furthermore, he paid invoices for his taxi company from there and conducted phone calls as well as other correspondence. A. had access to a standing cabinet in the office labeled with his (company) name, in which he stored the documents required for bookkeeping and monitoring driving and rest times (for example, customer cards, credit statements from major customers, tachograph discs to be recorded daily, and control cards). He was the only one who possessed a key to this standing cabinet. The taxi dispatch center also maintained a post office box at the nearby post office. The vast majority of A.’s mail was delivered there. The mail was picked up once a day and then distributed to the mailboxes reserved for A. and others in the taxi dispatch office. In addition to A., two other taxi operators had their business addresses in the taxi dispatch office and used its premises, each with their own storage cabinet and mailbox.
A. holds a driver’s license issued in Switzerland, a Swiss taxi license, and three Swiss “A” taxi operator permits, which, under the Taxi Ordinance of the Canton of TG, authorized him to park in public spaces and use public taxi stands. There was no guarantee of a parking space or a fixed assignment. During the years in question, A. had four vehicles at his disposal, one of which served as a replacement vehicle. In addition, he had a rented underground parking space in X. In 2009, he employed five taxi drivers, and in 2010, four.
[### 5.2 Questions
X AG, headquartered in Canton Z, operates a cross-border high-pressure pipeline network for transporting natural gas from Germany through Switzerland to Italy. The network is connected to the national transmission networks in Switzerland, Germany, and Italy and has several border transfer and network interconnection points. In all three countries, there are also direct connections to large industrial consumers, particularly power plants and energy-intensive manufacturing facilities.
Compressor stations, metering and control facilities, and connections to gas storage facilities are located along the route. The company generates its revenue primarily from transmission fees for entry and exit capacities from domestic and foreign energy supply companies.
Strategic and commercial management is handled at the headquarters in Zurich. There, X AG employs approximately ten staff members in the areas of management, capacity management, and transport scheduling (including volume and daily control), as well as finance and administration.
Operational monitoring and control of the network is carried out via a network control center located in Germany that is staffed around the clock. This center is operated by a specialized external service provider with its own staff and is responsible for analyzing operational and safety data as well as for the technical control of the facilities. Maintenance, repairs, and troubleshooting along the pipeline are also performed by external specialist companies.
X AG does not employ its own staff outside of Switzerland.
It is undisputed between A AG and the tax office that the pipeline network constitutes permanent establishments and that the profit generated must be allocated to Switzerland, Germany, and Italy. However, there is a dispute regarding how the profit should be allocated among the three countries.
X AG applied the proportional method for the international allocation. The starting point was the company’s total profit under commercial law. This was not allocated directly to the individual permanent establishments on a segment-by-segment basis, but was first determined as a total result.
In a second step, the net profit was allocated to Switzerland, Germany, and Italy using an objective allocation formula. The relevant formula was the proportion of the respective route segments to the total transport distance of the natural gas transported (the so-called transport-kilometer method). The decisive factor was thus the ratio of the pipeline kilometers covered in the respective country to the total length of the transport route used.
X AG justified this approach by arguing that, for a pure transit network operator, value creation arises essentially in proportion to the use of the physical infrastructure.
The cantonal tax administration, however, took the position that the profit was predominantly attributable to the Swiss parent company. The allocation of profits should be based on a function- and risk-oriented approach in accordance with the so-called Authorized OECD Approach (AOA).
It emphasized that the key business decisions—in particular, planning, contract management, financial control, and risk assumption—are made at the Swiss parent company. It classified these functions as “Significant People Functions” within the meaning of the AOA framework.
Since X AG has no employees of its own working in either Germany or Italy and operational monitoring and maintenance have been outsourced to external service providers, only subordinate, technical transport functions are to be attributed to the foreign permanent establishments, the value of which is to be determined using the so-called cost-plus method. To determine the cost base, the first step is to identify the costs that can be directly allocated to a specific section of the pipeline (direct costs). Overhead costs should be allocated to the respective country as a cost unit using the “cumulative investments” allocation key. A cost mark-up of 5% is appropriate, as the relevant risks are managed by personnel working at the parent company.
How should profits be allocated to Switzerland, Italy, and Germany?
