Switzerland: Federal Supreme Court rejects offshore financing of a Swiss real estate group
International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX
Copyright © Legal Benchmarking Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Switzerland: Federal Supreme Court rejects offshore financing of a Swiss real estate group


Reto Savoia

Sufficient substance in an offshore financing branch of a Swiss company is required so that the foreign branch qualifies as a foreign permanent establishment. In this case, an entirely Swiss-based real estate group managed its finance activities through a Cayman Islands branch of a Swiss finance company. While the finance company had no employees in Switzerland, the Cayman branch had four part-time employees working 20% each.

Based on a ruling with the cantonal tax authorities, the Cayman Island branch constituted a permanent establishment to which all income of the finance company would be allocated and exempt from the Swiss tax base.

The Swiss Federal Tax Administration decided that the ruling would no longer be valid for direct federal tax purposes and subsequently appealed the decision of the cantonal administrative court – which upheld the existence of a permanent establishment – before the Federal Supreme Court. On October 5 2012 the Federal Supreme Court denied the existence of a permanent establishment in the Cayman Islands and ruled that all income of the Cayman branch was taxable in Switzerland.

The decision by the Swiss Federal Supreme Court to tax all financing income in Switzerland and not in the Cayman branch was based on the grounds that the activities of the Cayman Islands branch did not rise to the level of a permanent establishment which would merit an income allocation to the Cayman branch. The court in particular highlighted the fact that although there were four part-time employees in the Cayman branch their total compensation amounted to only $50,000 a year, while they managed a loan portfolio of several hundred million dollars.

In view of the above court case it will be all the more important to make sure that there are sufficient activities and substance in a foreign financing branch so that it qualifies as a foreign permanent establishment.

Reto Savoia (rsavoia@deloitte.ch)


Tel: +41 (0)58 279 63 57

more across site & bottom lb ros

More from across our site

Proposals by HM Revenue and Customs to raise standards in the advisory market are ‘well overdue’, one partner declared
An intimate understanding of a client’s sector is essential to winning new business, a survey of over 28,000 corporate counsel reveals
‘Auditors are failing to perform their core function’ according to a think tank; in other news, White & Case adds a tax partner in Luxembourg
An overhaul of EU import taxes could spell the end of an exemption for cheap parcels
Sharma, managing director for A&M in the United Arab Emirates, tells ITR about intense time pressures, mimicking Jurgen Klopp and what makes tax cool
AI will speed up some of the most laborious TP processes without making human input redundant, argues Hank Moonen, CEO of TaxModel
Firms with a broad geographic reach are more likely to win work, especially from global companies with high turnovers, according to survey data of nearly 29,000 corporate counsel
Australian businessman Gordon Merchant used EY’s advice to offset an A$85 million capital gain, according to the Federal Court
Griggs has been drafted in ahead of schedule as the incumbent Tim Ryan departs for Citigroup; while the Netherlands plans to scrap a 15% share buyback tax
Authorities must ensure that Russian firms do not use transfer pricing schemes to increase profits made from oil sold in different markets, advocacy organisations have argued
Gift this article