Tax exemption for municipal public law establishments: Interpretation of the concept of "sovereign tasks prescribed by cantonal or federal law" and the principle of competitive neutrality

Federal Supreme Court, 02.26.2026, 9C_32/2025

Facts

Company A., an autonomous public law entity of the municipality of U. (SO), was informed by the Solothurn Cantonal Tax Administration of an amendment to the cantonal tax law (StG/SO) that took effect on January 1, 2021. This revision restricted the tax exemption for public law entities.

Following a request for partial exemption by Company A.________, the Tax Administration issued a decision on September 10, 2021. It granted an exemption for certain activities deemed sovereign, specifically: basic electricity supply within the assigned service area, planning and maintenance of the corresponding networks, public lighting in that same area, and water supply. Conversely, all other activities, including the supply of gas and district heating, the supply of electricity on the open market or outside the assigned area, as well as income from investments, were made subject to tax.

After an initial appeal was rejected by the Cantonal Tax Court, the Federal Supreme Court remanded the case to the lower court (judgment 9C_271/2023), ruling that if a public entity is taxed like a private company for its competitive activities, it must also be able to invoke fundamental rights as a private entity would. The Cantonal Tax Court rejected the appeal again, leading Company A.________ to once again bring the matter before the Federal Supreme Court. It is requesting that its tax exemption be extended to almost all of its activities in the electricity, gas, and district heating sectors.

Legal Analysis

The dispute concerns the interpretation and constitutionality of the new Art. 90 para. 1 let. c of the Solothurn Tax Law (StG/SO). This provision exempts municipalities and their entities "provided that they perform sovereign tasks prescribed by cantonal or federal law."

According toArt. 23 para. 1 let. c of the Federal Act on the Harmonization of Direct Taxes (HATA), cantons have the discretion to define the scope of tax exemptions for municipalities and their entities. In adopting the new provision, the Solothurn legislature explicitly intended to end a tax privilege deemed unjustified. The objective was to establish greater competitive neutrality by subjecting the economic activities of autonomous public entities that compete with private companies to taxation.

The legislature deliberately limited the legal basis for exempt tasks to cantonal and federal law, excluding municipal law. This restriction is intended to prevent municipalities from unilaterally classifying certain of their activities as "sovereign" to obtain an exemption, which would create legal uncertainty and unequal treatment across the canton.

The Federal Supreme Court reiterates that a public law entity may invoke the principle of equal treatment (Art. 8 Cst.) and economic freedom (Art. 27 Cst.) when it acts in the market in competition with private actors. The principle of competitive neutrality (derived from Arts. 27 and 94 Const.) requires that the State does not distort competition by granting undue advantages to its own entities.

Application to the specific case

The Federal Supreme Court first examines the constitutionality of the contested cantonal provision and deems it consistent with higher-ranking law.

1. No violation of equal treatment (Art. 8 Const.):
   1. The new law does not violate equal treatment; on the contrary, it promotes it by subjecting the appellant's competitive activities to taxation, placing it on an equal footing with its private competitors. The previous total exemption constituted a privilege without objective justification.
   2. The distinction made by the law between autonomous establishments (partially taxable) and non-autonomous municipal entities (fully exempt) is justified by objective reasons. An autonomous establishment possesses its own legal personality, greater flexibility, and entrepreneurial autonomy, which distinguishes it from administrative services integrated into the municipality.
   3. Excluding municipal law as a basis for exemption is also considered relevant to ensure uniform application of tax law throughout the canton and to avoid competitive distortions between municipalities.

1. No violation of economic freedom (Art. 27 Const.):
   1. The law does not restrict the appellant's economic freedom but rather reinforces the principle of competitive neutrality by removing a tax advantage.

Next, the Federal Supreme Court analyzes the application of the law to the appellant's various activities:

• Electricity: Only activities related to universal service (Grundversorgung) and grid operation within the service area formally assigned by a cantonal decision are considered sovereign tasks prescribed by federal law (Electricity Supply Act, ESA). Electricity production, supply in the free market, and activities outside the assigned area are competitive activities and therefore taxable. The Court clarifies that a simple grid lease agreement with another municipality is insufficient; a formal assignment decision from the canton is required to benefit from the exemption. The argument regarding protection of good faith is rejected, as the legal amendment was foreseeable.
• Gas and District Heating: The Court finds that there is no legal provision, at either the federal or cantonal level, that imposes an obligation on municipalities to provide gas or district heating. General energy policy objectives are insufficient to constitute a "prescribed task." These activities are therefore entirely commercial and taxable.
• Other services (installations, etc.): The services provided by the appellant, even to its own municipality and at cost price, are commercial in nature and compete with the private sector. Subjecting them to tax is consistent with the goal of competitive neutrality intended by the legislature.

Outcome

The Federal Supreme Court dismisses the appeal. The decision of the Solothurn Cantonal Tax Court is upheld. The tax exemption for A.________ remains limited to the activities defined in the initial decision of the Tax Administration dated September 10, 2021. Legal costs are borne by the appellant.

Silex Tax Newsletter published in collaboration with Anna Vladau, Attorney at Law