13.11.2017

Tax exemption for sports associations

The Swiss Federation of Equestrian Sports applied for a tax exemption for the state and direct federal taxes for the periods between 2002 and 2009 because of the pursuit of public purposes (Art. 56 lit. g DBG). The tax administration of the Canton of Berne refused this exemption and did not deviate from this decision in the appeal proceedings.

Thereupon, the Swiss Federation of Equestrian Sports filed a complaint with the Administrative Court of the Canton of Berne. The Administrative Court dismissed the complaint by decision of 11 March 2016. The complainant further brought the complaint before the Federal Supreme Court, which dismissed the complaint by decision of 17 July 2017 (2C_314, 315/2016) on the following grounds.

No tax exemption in case of predominantly profit-orientated and self-help purposes

The Federal Supreme Court referred to a ruling of 2010 (2C_383/2010), in which it had already stated that legal entities that primarily pursue profit-making or self-help purposes are in principle not entitled to tax exemption pursuant to Art. 56 lit. g DBG, even if they also serve public purposes. The Federal Supreme Court hereby confirmed this Jurisprudence.

Differentiation regarding the activities of international sports associations

The Swiss Equestrian Federation additionally objected that the tax exemption is granted to international sports associations due to the pursuit of public purposes and therefore it should also be entitled to it, because the international aspect is not a decisive distinguishing criterion. The Administrative Court and the Federal Supreme Court both base their counter-argumentation on the Federal Council 's decision of 5 December 2008 ("Taxation of international sports associations based in Switzerland"), in which it was stated that international sport contributes to international understanding and the promotion of peace, in addition to values such as fair play, the fight against racism and discrimination, etc. The Federal Supreme Court also stated that Switzerland is an important location for sports associations. In addition, Switzerland as a location is of extraordinary importance for the federations of world sport, which Switzerland also wants to maintain in the future and therefore offer attractive framework conditions to the international sports federations. Based on this Federal Council decision, the Federal Tax Administration issued a circular ("Tax exemption of international sports federations") on 12 December 2008, in which it determined that international sports federations domiciled in Switzerland and affiliated to the International Olympic Committee are exempt from direct federal tax pursuant to Art. 56 lit. g DBG.

The Federal Supreme Court declared the Federal Council decision and the circular to be in conformity with federal law. It is true that the argument of locational competition would not in itself constitute a sufficient reason for differentiation from national associations. However, the other two aspects mentioned, namely the promotion of peace and international understanding on the one hand and the implementation of values such as fair play, the fight against racism and discrimination, etc. on the other hand, were essential. Although national federations can also commit themselves to the implementation of such values, international sports organisations have to add the aforementioned aspect of peace promotion and international understanding. Both aspects must be given sufficient priority, especially over other economic and self-interests, to justify a tax exemption and the different treatment compared to national associations. Consequently, a different assessment in relation to the pursuit of public purposes may well be appropriate and an equal treatment in injustice does not come into play in casu.

Final remark

The tax exemption for the international sports associations has made Switzerland a centre of the international sports world. The Federal Supreme Court indirectly confirms the existing legal basis for this exemption in Switzerland. The scandal surrounding FIFA puts increasing pressure on this privilege and the present decision shows that understanding within the sports world for this privilege reserved for small circle is dwindling.

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Authors
:
Viktor Bucher
Tags:
Jurisprudence
CIT