19/11/2024
The Federal Supreme Court rejects contradictory methods applied by the Geneva tax authorities to a distribution from a Panama foundation
The beneficiary of the foundation, represented by ECHO SA, prevailed before the Swiss Federal Court (FSC), overturning the judgment of the Geneva Cantonal Court of Justice which followed the position of the Geneva Cantonal Tax Administration (AFC-GE). In this judgment no. 9C_176/2024 of 30 October 2024, the FSC disavowed the tax authorities’ approach of taxing a distribution from the foundation as income of the beneficiary, to the extent that said authority had already
The taxpayer was the beneficiary of a Panama foundation set up by her great-aunt, who died in 2012. Following a “disregarded entity” approach, AFC-GE included the foundation’s bank account in the deceased’s estate. In so doing, AFC-GE issued an inheritance tax assessment to the beneficiary taxpayer for her share of the foundation’s assets, taxed at the rate applicable to her family ties with the deceased.
However, AFC-GE changed its position in 2020, when the foundation distributed to the beneficiary taxpayer her share of the foundation’s assets. AFC-GE then took the view that the foundation was a separate tax subject and that this distribution, made in fulfilment of its statutory obligations, formed part of the beneficiary’s taxable income.
In the present case, the same authority (AFC-GE), in two successive proceedings, dealt with the same facts and the same legal issue - the attribution and taxation of the foundation’s assets - by adopting two contradictory approaches: the same increase in the taxpayer’s assets was thus taxed both in the context of inheritance tax (according to an economic approach), and in the context of income tax (according to a formalistic approach).
In the FSC’s view, the position adopted by AFC-GE and the Court of Justice violates the principle of the prohibition of dualism of methods. By making the distribution subject to income tax, the AFC-GE and the Court of Justice applied art. 24 let. a of the Federal Act on Federal Direct Tax in a manner that is contrary to art. 9 of the Federal Constitution (prohibition of arbitrary treatment). The amount already subjected to inheritance tax are not to be included in the beneficiary’s revenue for income tax purposes.