Swiss Federal Supreme Court, 08.09.2025, 9C_677/2024
Facts
Taxpayers received annual distributions from an irrevocable family trust under U.S. law, established by the father of one of the taxpayers. They declared these amounts as inheritances. The Zurich cantonal tax authority initiated a tax reassessment procedure for the years 2013 to 2019, taking the view that the distributions had been taxed neither as income nor as wealth. It intended to tax half of the trust's assets as the taxpayers' wealth.
Upon appeal, the Administrative Court of the Canton of Zurich partially upheld the taxpayers' request. Regarding cantonal and municipal taxes, it ruled that it was not a share of the trust's assets that should be attributed to the taxpayers, but rather the capitalized value of their rights as beneficiaries. It remanded the case to the tax authority for a recalculation. The latter appealed this decision to the Federal Supreme Court.
Legal Analysis
The Federal Supreme Court reiterates that, according to Art. 13 para. 1 of the Federal Act on the Harmonization of Direct Taxes (HADT), all net wealth is subject to wealth tax. Art. 13 para. 2 HADT specifically provides that assets subject to a usufruct are taxed in the hands of the usufructuary. In the absence of other specific allocation rules in the HADT, ownership as defined by civil law is generally the determining factor.
Swiss law does not regulate trusts but recognizes them via the Hague Convention. A trust has no legal personality and is generally treated as fiscally transparent. For an "irrevocable fixed interest trust," where the settlor permanently divests themselves of their assets and the beneficiaries' rights are defined, administrative practice (circulars from the Federal Tax Administration and the Swiss Tax Conference) treats the beneficiary as a usufructuary. The trust's assets and income are therefore attributed to them. If their share of the assets is not determinable, the value of their rights may be taxed based on their capitalization. This approach must respect the constitutional principle of taxation according to economic capacity (Art. 127 para. 2 of the Federal Constitution).
Application to the Case
The dispute concerns the method for allocating the trust's assets: a fixed 50% share (the tax authority's position) or the capitalized value of the rights (the cantonal court's position).
The Federal Supreme Court analyzed the trust deed and found that the circle of beneficiaries is not limited to the taxpayer and their brother, but also includes their descendants. Furthermore, distributions are not fixed but depend on specific needs (health, education, maintenance of standard of living) and are subject to the trustees' discretion. Beneficiaries may also withdraw up to 5% of the capital annually after the age of 30.
Due to these flexible terms and the open circle of beneficiaries, the Federal Supreme Court concluded that the taxpayer does not possess a fixed and determinable share of the trust's assets. Their power of disposal is limited and does not correspond to that of an owner of half the assets. Attributing 50% of the trust's assets on a flat-rate basis would therefore not reflect their actual economic capacity.
Consequently, the method adopted by the lower court—taxing the capitalized value of the beneficiary's rights—is deemed appropriate and consistent with the principle of taxation according to economic capacity. It takes into account the specific legal and factual situation. The Federal Supreme Court rejected the argument that this method would create a tax privilege, noting that the trust structure, recognized in Switzerland, must be respected in the absence of tax evasion.
Outcome
The Federal Supreme Court dismissed the cantonal tax authority's appeal and upheld the judgment of the Administrative Court of the Canton of Zurich. The case is remanded to the tax authority to perform a new calculation of wealth tax for the 2013–2019 periods, based on the capitalized value of the taxpayers' rights as trust beneficiaries.
Silex Tax Newsletter published in collaboration with Anna Vladau, Attorney at Law
