Asset management or commercial lending?

As the owner of a sole proprietorship, A. declared a total of approx. 50 loans with a total loan sum of more than CHF 30 million in the securities register for the state and municipal tax, or the direct federal tax for the tax period 2008 and claimed write-offs in the amount of CHF 690'063.05 per annum.

Both the responsible tax authorities and the administrative court of the Canton of Schwyz did not allow this deduction on the grounds that the depreciations do not relate to the taxpayer's business assets, but to his private assets. When A. died, Foundation X. became the sole owner and legal successor of A. and filed an appeal concerning public law matters with the Federal Supreme Court. The Federal Supreme Court approved of the appeal with the following justification and referred the case to the Administrative Court of Canton Schwyz for reassessment (BGE 2C_277, 278/2016).

Decisive for the assessment of commercial lending in the sense of Art. 18 para. 1 DBG is not only the number and extent of the loans. According to the Federal Supreme Court, this is also supported by the fact that the taxpayer transferred all loans to a Ltd. by sale or assignment at the end of 2012, the sole shareholder of which he was and which henceforth took over the granting of the loans. In addition, the entrepreneur has taken considerable risks in this case. Measured by his taxable assets of CHF 87,788,000, the loans made up more than a third at the end of 2008. The lending transactions were mainly concluded with companies or business owners (more than a dozen corporations). These risks could have been avoided by exercising a simple asset management, for example by investing in bonds. Furthermore, A. received an appropriate return of around CHF 1.5 million from the interest income from the loans, which indicates an intention to make a profit from the granting of the loans.

The Federal Supreme Court thus judges A.'s granting of loans to be extraordinarily extensive, so that it clearly goes beyond the scope of simple asset management. The overall picture of all the circumstances speaks in favour of a commercial activity in the field of lending pursuant to Art. 18 para. 1 DBG. Accordingly, the administrative court wrongly assessed A.'s activities as private asset management and A. was entitled to deduct the write-offs from his business assets within the meaning of Art. 27 para. 1 in conjunction with Art. 27 para. 2 lit. a DBG. para. 2 lit. a DBG.

For depreciation and amortisation - as for tax-reducing facts in general - the burden proof lies with the taxpayer. The Federal Supreme Court could not judge whether his depreciation was adequately disclosed and whether it was actually admissible in the specific case, and therefore referred the matter to the lower court for reassessment.