Recordkeeping in conflict with the tax authorities

On 19 July 2012, however, the Cantonal Tax Office of St. Gallen opened an additional tax assessment in accordance with Art. 151 para. 1 DBG for the tax period 2003. In the course of audits carried out at B. AG and C. AG (formerly D. AG with its registered office in U.), receipts in the amount of CHF 215'000, CHF 48'000 and CHF 35'000 were discovered, in the light of which the tax office subsequently calculated a taxable income of CHF 298'000 for the then married couple A. The Tax Office of St. Gallen adhered to this assessment with the appeal decision of 18 February 2014, whereby only the offsetting of the amount of CHF 215'000 remained in dispute.

According to a receipt dated 15 January 2003, the complainant A.A., as representative of (then) D.AG, accepted Fr. 215,000 in cash from E. as a "consultancy fee sale street 50-52". A.A. claimed that he had received this amount on behalf of and in representation of D. AG. The CHF 215,000 did not accrue to him as income, but to D.AG as profit. This was because he had been instructed by the now deceased owner of D.AG at the time to use the CHF 215,000 for renovation work on D.AG's properties. As evidence, he submitted various payment confirmations from the companies that had carried out the renovation work in 2003 and 2004. The confirmations were all dated 2013.

The Administrative Appeals Commission of the Canton of St. Gallen and the Administrative Court of the Canton of St. Gallen also subsequently dismissed the appeals brought by A.A. A.A. reached the Federal Supreme Court which also dismissed his appeal by decision of 12 April 2017 (2C_839,840/2016) with the following statement of grounds.

Obligation to keep records regarding self-employed individuals

According to Art. 18 para. 1 DBG, tax is payable on "all income from a commercial, industrial, trade, agricultural or forestry business, from a liberal profession or from any other self-employed activity". Self-employed persons are obliged to keep records. According to the Federal Supreme Court, those records must be kept chronologically which record the business transactions in a timely manner, i.e. immediately after their realisation, and thus up-to-date.

With regard to the burden of proof, the tax authority must provide evidence for facts that establish or increase taxes and the taxpayer must provide evidence for facts that suspend or reduce taxes. The taxpayer may offset tax establishing facts by counterevidence.

It is i.c. up to the complainant to prove, based on the records of his business transactions, that he received the amount of CHF 215,000 on behalf of D.AG and used it to pay for the property renovations for D.AG. However, he does not succeed in this, because there is no evidence whatsoever of a contractual relationship between him and D.AG. The signature block "D.AG Vertr. durch A.A." on the receipt of 15 January 2003 is not credible. Rather, A.A. appears to have collected the 215,000 Swiss francs himself and to have arranged the legal transaction between himself and E. as a private individual. This is also supported by the fact that A.A. only attempted to prove the use of the amount of CHF 215,000 by means of the payment confirmations after the initiation of the subsequent tax proceedings, around ten years after the renovation work had been carried out. Moreover, it cannot be inferred from the payment confirmations that the respective invoices were paid in cash and by the complainant, nor that A.A. had acted on behalf of D.AG. Thus, A.A.'s evidence is not sufficient to rebut the presumption of access to income. According to the Federal Supreme Court, the lower court correctly qualified the CHF 215,000 as income from self-employment.