Supreme Court decision 2C_996/2015, official publication planned
A Swiss pension fund was offered the possibility to invest into Common Trust Funds (CTF) by a US bank. For this reason, the Swiss pension fund had to set up a revocable and discretionary trust relationship, whereby the US bank operated as trustee and the pension fund remained the main beneficiary of the trust. The bank then invested in CTF, which are potentially subject to transfer stamp duty. In 2003, however, the pension fund obtained a ruling from the Swiss Federal Tax Administration (FTA), confirming that purchases and sales of CTF units would not trigger the payment of the transfer stamp duty as these transactions had been carried out by the US bank, who, unlike the pension fund, was not a Swiss security dealer. Yet, further to an audit conducted in 2010, the FTA found out that the pension fund had booked the CTF acquired by the bank on its balance sheet. Consequently, the FTA revoked the 2003 ruling with retroactive effect on 1st July 2007. The pension fund filed an appeal, which was rejected by the FTA but accepted by the Swiss Federal Administrative Tribunal. The FTA appealed against this decision in the Supreme Court which ruled in favour of the taxpayer.
The issue at stake was whether the CTF should be attributed to the pension fund for the purpose of the Swiss transfer stamp duty or to the bank. Given the circumstances, in the former case, transactions on such assets would have triggered the payment of the tax whereas it would not have in the latter. The Supreme Court confirmed first of all that, subject to tax avoidance, ownership under civil law is decisive for transfer stamp tax purpose. Referring to its case law as well as to the explanatory comments from the Federal Council related to the stamp duty Act, the Supreme Court confirmed that the transfer stamp duty is a formal tax, whose concepts, subject to certain exceptions expressly provided by the lawmaker, are to be construed according to civil law. Accordingly, for transfer stamp tax purposes, the transfer of ownership of securities should be understood from a civil law point of view. As a result, the Supreme Court also rejected the FTA’s argument when it referred to its guidelines on the income and wealth taxation of trusts drafted in collaboration with the cantonal tax authorities (circular 30 of 22 August 2007). Indeed, while a revocable trust should be disregarded for income and net wealth tax purposes according to these guidelines, the latter are not relevant in the field of the transfer stamp tax. The Supreme Court also held that the recording of an asset may result from economic control, even in the absence of formal legal ownership.
Based on the provisions of the Hague Convention on the Law applicable to Trusts and on the legal opinion from a US lawyer, the Supreme Court concluded that the trust relationship should be recognised for Swiss private law purposes. Following the doctrine on Anglo-Saxon trusts, it then held that portfolio assets should be regarded as owned by the US bank from a Swiss private law standpoint and hence denied the application of the transfer stamp duty on the transactions made by the US bank on CTF. It hence rejected the appeal made by the FTA.
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This is a landmark ruling as it clarifies that FTA’s practice developed in relation to the income and net wealth taxation of trusts is at any rate not automatically applicable when it comes to stamp tax duties whose interpretation is predominantly governed by civil law. The Federal Supreme Court of Switzerland ruled that the pension fund had ceded all ownership of the trust to the bank, so only Bank E was entitled to act as trustee and securities dealer. ("nemo plus juris transferre potest quam ipse habet" - ‘no one can transfer a greater right than he himself has’ - principle, E. 4.4). In addition the Supreme Court of Switzerland pointed out that one cannot presume ownership simply on the basis of a financial activation of assets (E.5.4) and rejected the FTA's complaint.