Federal Supreme Court, 24.02.2026, 9C_606/2025
Facts
In 2008, A.________ SA (the taxpayer), whose primary business is the operation of a property, was acquired by C.________ SA, a company incorporated for this purpose (acquisition vehicle). The transaction was financed by a USD 9,500,000 loan granted jointly and severally to A.________ SA and C.________ SA by a third-party entity, E.________ LLC. This loan was intended to finance the acquisition of A.________ SA's shares (for CHF 8,400,000) and the renovation of its property (for CHF 2,600,000).
In April 2009, A.________ SA (target company) absorbed C.________ SA (acquisition vehicle) through a merger. As a result of this merger, the acquisition debt incurred by C.________ SA was transferred to A.________ SA's balance sheet. This structure is known as a debt push down.
For the 2010 and 2011 tax years, the taxpayer did not file tax returns, which led the Geneva Cantonal Tax Administration (AFC) to issue ex officio assessments. It was not until 2013, upon the filing of the 2012 return, that the AFC became aware of the property revaluation and the existence of the loan, due to the significant interest expenses deducted.
The AFC then initiated a back-tax procedure for the 2010 and 2011 tax years and denied the deduction of interest expenses related to the portion of the loan used to acquire the shares for the 2010 to 2013 tax periods, deeming them expenses not justified by business usage. The cantonal authorities upheld this position. The taxpayer appealed to the Federal Supreme Court.
Law
The Federal Supreme Court examines two main legal issues:
- Back taxes (Art. 151 DBIT): Back taxes may be assessed when facts or evidence previously unknown to the tax authority reveal that a final tax assessment is incomplete. According to established case law, an ex officio assessment is subject to back-tax procedures. When a taxpayer fails to file a return, their conduct is considered the primary and immediate cause of the insufficient assessment. Consequently, the taxpayer cannot argue that the tax authority could or should have conducted more extensive investigations to contest the back-tax assessment.
- Expenses justified by business usage (Art. 58 para. 1 let. b DBIT): To be deductible from taxable profit, an expense must be justified by business usage. This means there must be an objective and direct causal link between the expenditure and the company's economic activity aimed at generating income. It is not the tax authority's role to judge the appropriateness of an expense, but it must verify its connection to the company's purpose. The burden of proving business justification lies with the taxpayer.
- The principle of periodicity (Art. 79 DBIT): This fundamental principle of substantive tax law requires that income and expenses be allocated to the accounting period to which they relate. Each tax period is assessed independently. This principle takes precedence, barring an express legal exception (such as loss carryforwards underArt. 67 DBIT), based on the principle of taxation of total profit.
- Statute of limitations for tax back-claims (art. 152 para. 3 DBTA) : The right to initiate a tax back-claim expires 15 years after the end of the relevant tax period (absolute statute of limitations).
Application to the specific case
The Federal Supreme Court applied these principles as follows:
- Regarding the statute of limitations: The Federal Supreme Court notes ex officio that the right to initiate a tax back-claim for the 2010 tax period has reached the 15-year absolute statute of limitations as of the date of its ruling. The tax back-claim for that year is therefore cancelled.
- Regarding the validity of the tax back-claim for 2011: The appellant argued that the FTA should have been aware of the situation, as the merger was entered in the commercial register. The Federal Supreme Court rejects this argument. By failing to file its tax returns for 2010 and 2011, the taxpayer is the direct cause of the incomplete ex officio assessment. The FTA was not required to infer the existence of a debt push-down structure and an acquisition loan based solely on a merger registration. The conditions for a tax back-claim for 2011 are therefore met.
- Regarding the deductibility of interest expenses (2011-2013): This is the central point of the ruling. The appellant claimed that the interest, which would have been deductible for the acquiring company C.________ SA, should remain deductible for it after the merger, by virtue of the principle of universal succession (Merger Act) and the tax neutrality of restructurings (art. 61 DBTA).
The Federal Supreme Court dismisses this argument based on the principle of periodicity. The commercial justification for expenses must be examined for each tax period (2011, 2012, 2013) and from the perspective of the company bearing them, namely A.________ SA. The fact that the expense may have been justified for another entity (C.________ SA) in a previous period is not decisive.
The Federal Supreme Court then analyzes the specific economic activity of A.________ SA. Its purpose is the operation of a property, not the acquisition of shareholdings. The portion of the loan (76.36%) used to finance the buyout of its own shares by the new shareholders has no objective causal link to its real estate operating activity. This debt was not used to finance investments in its business assets or to generate liquidity for its operations. It served solely to compensate the former shareholders.
Consequently, the appellant failed to prove that these interest expenses were justified by its business usage. The Federal Supreme Court specifies that neither the principle of universal succession (which governs the transfer of assets and liabilities) nor the tax neutrality of mergers (which aims to preserve hidden reserves) can override the requirement for commercial justification of expenses set out in art. 58 para. 1 let. b DBTA.
Outcome
The appeal is partially upheld. The judgment of the Geneva Court of Justice is set aside insofar as it concerns the tax back-claim (federal and cantonal/communal income tax) for the 2010 tax period, as this right has expired. The corresponding tax is cancelled. For the remainder, the appeal is dismissed. The tax back-claim for 2011 is confirmed, and the refusal to deduct interest expenses related to the acquisition for the 2011 to 2013 tax periods is upheld.
Silex Tax Newsletter published in collaboration with Anna Vladau, Attorney at Law
