Workshop by Patrick Waldburger and Toni Hess at the ISIS) seminar on September 23-24, 2024 entitled "Private asset management versus commercial trading"
Note: This language version is an automatically generated translation. The text may therefore contain linguistic and terminological errors.
view in original language (German)In 2016, siblings Leano and Gianna each received a 3/5 share of undeveloped parcel No. 69 in the canton of St. Gallen (total parcel area: 1,760 m²) from their mother as part of an advance gift. They acquired the remaining 2/5 of the parcel by contract in March 2022 for CHF 1.55 million. They separated 300 m² from the parcel. They had this portion entered in the land register as the new parcel No. 70 (held in joint ownership by the two siblings).
Parcel No. 69 was part of their mother’s private assets.
Leano is a lecturer in cantonal constitutional law at the University of St. Gallen (HSG); Gianna works as a doctor at the Cantonal Hospital of St. Gallen.
After the separation, Leano and Gianna established condominium ownership on the remaining parcel No. 69 and had a multi-family house with 15 condominium units built on it. In 2022, they sold six condominium units, or a share of 341/1000. They realized proceeds of CHF 4,210,952. The siblings declared a capital gain (in their private assets) from the sale of the property. The remaining nine units are leased to long-term tenants and serve as a long-term capital investment. Happy sheep graze on the 300 m² of land that was subdivided and remains undeveloped.
Following the sale of the six residential units, the responsible tax commissioner at the Tax Office of the Canton of St. Gallen stated that the two siblings should not be classified as real estate dealers.
The Tax Office of the Canton of SG classifies the siblings as commercial real estate dealers in connection with the sale of the six residential properties, calculates a taxable net profit of CHF 533,000 each (see details below), and intends to tax this amount with federal income tax as well as cantonal and municipal taxes.
Calculation of net profit:
Total construction costs CHF 5,673,008
Purchase of building land (2/5) CHF 1,550,000
Inherited building land (3/5) CHF 2,325,000
./. subdivided (300 m²) CHF - 660,508
Total construction costs CHF 8,887,500
Total sales (341/1000) CHF 4,210,952
Share of construction costs (341/1000) CHF -3,030,638
Total profit CHF 1,180,314
Profit per partner CHF 590,157
./. per person AHV contributions (10.6%) CHF - 62,557
Net profit per partner CHF 527,600
Leano and Gianna (neither of whom had any connection to the real estate sector) acquired a property with two buildings on it in 2012 through an advance on inheritance. In 2016 and 2017, they had maintenance work carried out on the existing buildings. However, given the age of the buildings (built in 1920), this proved to be a bad investment. On the recommendation of real estate experts, they had the existing buildings demolished in 2021 and 2022 and a new development constructed. This comprised a multi-family home with six apartments. From December 2022 to February 2023, Leano and Gianna sold four apartments. Leano and Gianna each took over one of the remaining two apartments.
A is the managing director of C. AG, where his spouse B is also employed. C. AG is active in real estate management. In September 2010, A, together with five other buyers—including D. AG, which operates in the real estate sector—acquired a 15% co-ownership share in the developed parcel No. 6 in the municipality of U. at a public auction. A financed the acquisition of the co-ownership exclusively with his own funds.
In July 2011, A and Z. GmbH entered into an agreement regarding the general partnership G. Its objective was to develop a hotel and residential complex on Plot No. 6 in collaboration with the other co-owners. In the following years, the general partnership G. paid fees totaling over CHF 650,000 to the architectural firm F. AG for the implementation of the real estate project on parcel No. 6.
In December 2019, the municipality granted the general partnership a building permit for the “demolition of the existing building and the construction of a residential and hotel complex” on parcel no. 6.
In June 2020, A transferred half of his co-ownership share (7.5%) in Parcel No. 6 to Z. GmbH and gifted the other half (7.5%) to his wife, B.
Since the acquisition, the spouses A and B have consistently declared their co-ownership share in parcel no. 6 as private assets. This was accepted by the tax administration of the Canton of VS.
By public deed of sale dated October 10, 2022, the general partnership G. (comprising, among others, the spouse B) sold Parcel No. 6 to Y. AG for a purchase price of CHF 20 million, with one of the contractual clauses reading as follows:
"Should the amended building permit not be available by April 30, 2023, or should any of the official permits required for the construction project be revoked, this purchase shall become void without compensation to either party."
On December 12, 2022, the municipality granted approval for the modification of the construction project approved in December 2019.
In December 2023, Mr. and Mrs. A and B filed their tax return for the year 2022. In the remarks section of the tax return, they asserted that the profit from the sale of their co-ownership share in parcel No. 6 was subject to real estate gains tax.
In the 2022 assessment decision, the tax administration of the Canton of VS did not include any income from self-employment from the sale of parcel No. 6. The assessment decision became final and uncontested.
In the 2023 assessment decision, the tax administration of the Canton of VS included income from self-employment from the sale of the co-ownership share in parcel no. 6.
Both the objection filed with the tax authority and the appeal filed with the Administrative Court were unsuccessful for Mr. and Mrs. A and B.
In their appeal in public law matters before the Federal Supreme Court, Mr. and Mrs. A and B argue that the sold co-ownership share in parcel no. 6 was part of their private assets and not their business assets. Even if the co-ownership share had constituted business assets, the profit from its sale would have been taxable as income from self-employment in the 2022 tax period.
Ms. Sanddorn is a general partner of Galerie Blumenbild, a limited partnership in the Canton of Bern, for which she works full-time. From 2020 to 2023, Ms. Sanddorn withdrew works of art from her privately declared art collection each year and transferred them to Galerie Blumenbild for sale at auctions. In 2020, for example, the consignment included 42 works of art, all but four of which were sold at auction. Sales amounted to CHF 734,700 in 2020, CHF 87,150 in 2021, CHF 309,350 in 2022, and CHF 218,600 in 2023.
See above, Case 3.
From 2007 to 2009, Piercarlo Falcone held equity interests in companies with mining rights (mining/extraction rights) in Guinea-Bissau (West Africa). Bauxite, an ore used in the production of aluminum, is the primary mineral mined in this country.
Falcone was Chairman of the Board of Directors of C.C. Ltd, which conducted geological surveys in Guinea-Bissau. He was employed full-time by H.C.
May 22, 2009: Founding of F.C. AG (share capital: CHF 500,000). Falcone played a key role in this founding—including as a shareholder.
May 28, 2009: The government of Guinea-Bissau granted various exploration and mining licenses. These were transferred to F.C. AG via C.C. Ltd.
June 30, 2009: Capital increase of F.C. AG (new share capital: CHF 1,000,000). Falcone also played a key role in this.
2009: Shareholder loan from Falcone to F.C. AG.
January 13, 2010: Falcone and another shareholder of F.C. AG, acting as trustors, entered into a trust agreement with L.AG. The purpose of this agreement was to transfer all shares of F.C. AG to L.AG in trust in order to simplify negotiations with prospective buyers. The trustors’ goal was to sell the entire block of shares “en bloc” to a buyer who was “powerful enough” to establish the infrastructure and organization necessary for the mine’s operation.
February 11, 2010: Agreement on a phased sale to M.M. Corporation through December 31, 2015. Subsequently, various contractual adjustments were made. Falcone generated proceeds of CHF 4,320,000 in 2011.
In his 2011 tax return, Falcone reported income from his employment at H.C. AG of approximately CHF 86,000 as well as investment income of CHF 887.
The tax authority assessed a taxable income of CHF 97,600 for the 2011 tax period, as well as qualified investment income of CHF 1,595,900 (indirect partial liquidation). The tax authority set the taxable assets at CHF 2,100,000.
Falcone filed an objection to this. The objection was dismissed. In doing so, the tax assessment authority applied a reformatio in peius, increasing the taxable income to CHF 2,512,621 and setting the taxable assets at CHF 2,414,064. These amounts were slightly modified by the Special Administrative Court. The appeal filed against this decision with the Administrative Court was dismissed.
Falcone filed an appeal in public law matters with the Federal Supreme Court against the Administrative Court’s decision.
The spouses A.A. (born 1961) and B.A. (hereinafter: Spouses A.) are tax residents of Erlen/TG. The husband operated a farm there as a self-employed (part-time) business. In 2020 and 2021, he sold the business’s current assets and a portion of the agricultural land from his business assets. This resulted in the realization of hidden reserves amounting to CHF 70,000 in the 2020 tax period.
After 2021, parcels No. 97, No. 98, and No. 99 remained in his ownership. These consisted of (1) the farmhouse in which he lived, (2) the outbuildings, and (3) the surrounding land totaling 80 ares.
By purchase agreement dated August 2, 2022, A.A.—with the assistance of a real estate agent engaged in December 2021—also sold these three properties, resulting in total proceeds of CHF 1,330,000. Subsequently, the couple moved from the farmhouse to their single-family home, also located in Erlen, which they had purchased in 2012, subsequently rented out to a third party, and renovated in November 2021. In the 2021 financial statements, A.A. wrote off the three properties at market value. In the 2021 tax return, he claimed a private withdrawal regarding the three properties as of November 1, 2021.
In their 2022 tax return, Mr. and Mrs. A. then no longer declared any business assets.
During the assessment proceedings for the 2020 tax period, Mr. and Mrs. A. asserted that the definitive cessation of their self-employment had taken place on November 1, 2021, and therefore the year 2020 should be considered the second-to-last fiscal year for the taxation of the liquidation gain resulting from the cessation of self-employment.
The Tax Administration of the Canton of Thurgau, however, took the position that the liquidation was not completed until the sale of the three properties in the 2022 tax period.
Mr. and Mrs. A. argue that they transferred the three parcels to their private assets in November 2021. They cite the decommissioning (at market value) and the treatment in their tax returns as evidence. In the 2022 tax period, they had no longer declared any business assets, which is why the year 2020 should be considered the second-to-last fiscal year within the meaning of Art. 37b DBG.
It must therefore be examined whether the requirements for privileged liquidation within the meaning of Art. 37b DBG and Art. 11(5) StHG are met.
Specifically, the following questions arise:
What are the requirements for a private withdrawal?
In its judgment of August 5, 2021 (2C_390/2020), the Federal Supreme Court held that, in cases of doubt, it should be assumed that the asset remains part of the business assets. The decisive factor is not the short holding period as such, but the fact that all indications point to a pre-existing intention to sell the property immediately after it was written off. The intention to transfer (subjective element) is thus not proven, which—despite the undisputed accounting treatment (objective element)—precludes the assumption of a private withdrawal. Consequently, there is no privileged liquidation within the meaning of Art. 37b DBG or Art. 11 para. 5 StHG. The appeal by Mr. and Mrs. A. was therefore dismissed.
Subsequently, Mr. and Mrs. A. filed a petition with the Federal Supreme Court for a review of the aforementioned judgment. They request that, upon review, the transaction be deemed a liquidation within the meaning of Art. 37b DBG and Art. 11 para. 5 StHG. In their petition, Mr. and Mrs. A. primarily describe their business and family circumstances.
They expressly base their petition for review on Art. 123(2)(a) BGG. Under this provision, a review of a Federal Supreme Court judgment may be requested if the petitioning party subsequently learns of significant facts or discovers decisive evidence that it was unable to present in the earlier proceedings, excluding facts and evidence that arose only after the decision.
In the present case, Mr. and Mrs. A. repeat in their petition for review factual circumstances that were already known to the Federal Supreme Court—and the lower courts.
The two taxpayers, Andri and Franco, both over 55 years of age, jointly operated a general partnership (KollG). They each held a 50% stake in the partnership. The general partnership was converted retroactively to January 1, 2014, into a stock corporation (AG).
In 2013, i.e., prior to its conversion into a corporation, the partnership revalued certain fixed assets in the amount of CHF 175,000. This resulted in a profit for the partnership for that fiscal year.
In the 2013 tax period, Andri and Franco requested separate taxation of the liquidation profit of CHF 87,500 each resulting from the cessation of self-employment in connection with the conversion of the partnership into a corporation.
The tax authority rejected this request. The objection filed against this decision was upheld.
Since the appeal filed by the FTA against this decision was dismissed by the Cantonal Court, the FTA appealed to the Federal Supreme Court. It requests that the profit from the accounting revaluation be included in the taxpayers’ income from self-employment for the 2013 tax period.
