Open or hidden capital contributions: same  treatment (income tax)

In a judgement intended for publication (9C_678/2021 of March 17, 2023), the Swiss Federal Supreme Court has invalidated the practice of the Federal Tax Administration (FTA) according to which only open contributions by the shareholder (i.e. those booked by the beneficiary company) qualify as capital contributions not subject to income tax when they are reimbursed to the shareholder (Circular 29c “Principe de l’apport de capital” of December 23, 2022, ch. 2.1 and 3.2). In this case, a shareholder had taken over a debt from his company without consideration and without this transaction being accounted for as a contribution by the company. When the company was liquidated, the shareholder was taxed on the liquidation proceeds including the hidden capital contribution. The Swiss Federal Court accepted the shareholder’s appeal after a detailed analysis of art. 20 para. 3 LIFD. In response to an argument of the FTA that withholding tax rules should be applied by analogy, the Swiss Federal Court held that these rules could not constitute a valid legal basis for income tax purposes.