TF, 11.03.2026, 9C_261/2025
Facts
A taxpayer who owns a villa classified as a historical monument reported a negative taxable income for the 2018 tax period. The villa is used for multiple purposes: as a residence for himself and his son, as offices for several companies he controls, and as a venue for events.
In his tax return, he claimed three main deductions that are at the heart of the dispute:
- Maintenance costs totaling CHF 215,400, paid as a flat fee to one of his own companies (C.________ AG).
- Costs related to interest rate swap contracts amounting to CHF 228,124, which he classified as deductible interest expenses.
- He reported rental income that he considered low due to usage restrictions imposed by a building permit.
The Zurich cantonal tax authority, after unsuccessfully requesting clarifications and supporting documents from the taxpayer, proceeded with an ex officio assessment. It denied the deduction of the two aforementioned amounts and, based on its own assessment, estimated the villa's rental income at CHF 150,000 for the year 2018.
The tax assessments were upheld by all cantonal authorities. The taxpayer then appealed to the Federal Supreme Court, requesting the annulment of the lower court's decision, the recognition of his deductions, and a reduction in the estimated rental income.
Legal Analysis
The Federal Supreme Court reiterates the legal principles applicable to the three points in dispute:
- Ex officio assessment (art. 130 para. 2 and 132 para. 3 DBRA): In principle, the tax authority must establish the facts (investigatory principle), but the taxpayer has an extensive duty to cooperate. If, despite a formal notice, the taxpayer fails to fulfill their obligations or if the tax factors cannot be reliably established, the authority may proceed with an ex officio assessment, i.e., an estimate based on its own judgment. Such an assessment can only be challenged by the taxpayer if they prove it is "manifestly incorrect." To do so, it is not enough to criticize specific points of the estimate; the taxpayer must provide complete and conclusive accounting records that establish the actual facts, thereby correcting the uncertainty they themselves created.
- Building maintenance costs (art. 32 para. 2 and 4 DBIT): Private building maintenance costs are deductible if they are conservatory in nature, meaning they are intended to maintain the property's value. Costs that increase the value of the property (capital gains) are not deductible. For each property and tax period, the taxpayer may choose between deducting actual costs (which must be substantiated) and a flat-rate deduction (generally a percentage of gross rental income).
- Interest expenses (art. 33 para. 1 let. a DBIT): Private interest expenses are deductible up to the amount of investment income plus an additional CHF 50,000. The concept of interest expense must be understood in economic terms: it is the remuneration paid for the provision of capital. An essential condition is the existence of a direct causal link between the payment and a capital debt. Interest rate swap contracts are derivative financial instruments. They consist of an exchange of future interest flows between two parties, calculated on a notional amount that is not exchanged. This is a transaction distinct from a loan.
Application to the specific case
The Federal Supreme Court applies these principles to the facts of the case and rejects the appellant's arguments on all points.
- Rental income: The Federal Supreme Court finds that the taxpayer failed to fulfill his duty to cooperate. Throughout the proceedings, he provided contradictory and incomplete information regarding the rental income from his villa. Faced with this factual uncertainty ("Untersuchungsnotstand"), the tax authority was entitled to proceed with an ex officio assessment. The taxpayer failed, both before the cantonal authorities and the Federal Supreme Court, to demonstrate that the CHF 150,000 estimate was "manifestly inaccurate." His own assertions remained vague and unsupported by sufficient evidence. The tax authority's estimate is therefore upheld.
- Maintenance costs: The appellant requested the deduction of a flat-rate amount of CHF 215,400 paid to his own company. The Federal Supreme Court notes that this amount far exceeds the statutory flat rate (20% of the gross rental income of CHF 150,000). To deduct actual costs, the taxpayer would have had to provide detailed evidence of the nature (value maintenance rather than capital appreciation) and cost of each intervention. The document produced, a simple list of works without details, is deemed insufficient.
The argument that this practice had been accepted in previous years is dismissed, as each tax period is assessed independently, and the principle of good faith cannot be invoked in the absence of a formal assurance from the authority.
- Interest rate swap costs: The Federal Supreme Court analyzes the nature of the CHF 228,124 payments. It finds that the swap contracts and the loan agreements (LIBOR mortgages) are distinct legal instruments, concluded on different dates. Even if the swaps were concluded with the economic goal of hedging the interest rate risk of the loans, there is no sufficient legal nexus between the payments resulting from the swaps and the mortgage debt itself. The payments do not constitute remuneration for the borrowed capital, but rather the consideration for a derivative financial transaction. Consequently, they cannot be classified as deductible interest expenses within the meaning of Art. 33 DBIT.
The Federal Supreme Court notes that the relevant provisions of Zurich cantonal tax law are harmonized with federal law. The conclusions therefore apply identically to cantonal and municipal taxes.
Outcome
The Federal Supreme Court dismisses the appeal regarding both direct federal tax and cantonal and municipal taxes. The tax assessment decisions of the tax administration, confirmed by the cantonal authorities, are upheld. The legal costs are charged to the appellant.
Silex Tax Newsletter published in collaboration with Anna Vladau, Attorney at Law
