Swiss Federal Supreme Court, 23.02.2026, 9C_17/2026
Facts
In 2013, a limited company (the Company) granted a loan of CHF 187,790 to its sole shareholder and director (the shareholder). During the Company's tax assessment, the Geneva cantonal tax authority classified this loan as a sham, a decision that was not contested. Subsequently, the authority initiated a tax back-payment procedure against the shareholder and his spouse for the 2013, 2015, and 2016 tax periods, treating the loan amount as a taxable constructive dividend. Tax back-payments (federal and cantonal/communal) and a fine for tax evasion were issued to the shareholder. The cantonal authorities rejected the taxpayers' appeals, who then brought the case before the Federal Supreme Court.
Legal Analysis
A constructive dividend (Art. 20 para. 1 let. c of the Federal Act on Direct Federal Tax (LIFD)) is a benefit granted by a company to its shareholder (or a related party) without equivalent consideration, which it would not have granted to a third party under the same conditions. A loan granted to a shareholder may be classified as a sham, and therefore as a constructive dividend, if a set of indicators shows that the conditions of a genuine loan are not met (for example, due to the borrower's insolvency, the lack of collateral, a written contract, or repayment terms).
The analysis of whether a loan is a sham must be based on the circumstances existing at the time the loan was granted. Subsequent events, such as a late repayment made in response to tax proceedings, cannot retroactively change the nature of the transaction.
Application to the Case
The Federal Supreme Court upheld the lower court's analysis, which found the loan to be a sham based on several consistent indicators. At the time the loan was granted in 2013, the shareholder was insolvent, with certificates of unpaid debts totaling over CHF 410,000, and the funds were intended to settle his personal debts. Furthermore, there was initially no written contract, no repayment schedule, and no collateral. The Federal Supreme Court concluded that a loan of such magnitude (representing two-thirds of the Company's assets) would never have been granted to a third party under such circumstances. The Federal Supreme Court dismissed the appellants' arguments.
The formalization of a contract in 2016 and repayments made much later (starting in 2022) are subsequent events that do not alter the classification of the transaction in 2013. These late repayments are even considered abusive, as they attempt to retroactively correct the situation. The argument that the Company itself constituted an "objective economic guarantee" was deemed invalid. Finally, the claim of a violation of good faith was rejected due to insufficient justification.
Outcome
The Federal Supreme Court dismissed the taxpayers' appeal regarding both direct federal tax and cantonal and communal taxes. The decision of the Court of Justice is upheld. The tax back-payments and the fine for tax evasion are maintained. The legal costs are to be borne by the appellants.
Silex Tax Newsletter published in collaboration with Anna Vladau, Attorney at Law
