Real estate capital gains tax – classification of business, self-employed professional activity, and tax avoidance in the transfer of a real estate portfolio to a limited company

Federal Supreme Court, 19.09.2025, 9C_87/2025

Facts

A taxpayer, a former baker, acquired several properties between 1980 and 1995, the professional management of which was entrusted to a third-party company. Until 2016, he declared his assets as private wealth. In his 2016 tax return, he reclassified them as business assets. As part of his estate planning, he decided to transfer his real estate portfolio, held as a sole proprietorship, to a limited company (SA).

He obtained a ruling from the Zurich cantonal tax authorities confirming that the management of his properties constituted a "business" that could be transferred on a tax-neutral basis. However, the municipality of U.________ refused to grant the deferral of real estate gains tax for the properties located within its territory.

After he transferred the properties from his sole proprietorship to a newly created limited company, the municipality issued a tax assessment of CHF 629,219.50. In an initial judgment (9C_608/2022; BGE 150 II 40), the Federal Supreme Court ruled that the real estate portfolio did indeed constitute a "business," but remanded the case to the lower court to examine the issue of tax evasion. The cantonal administrative court ultimately concluded that there was no tax evasion and granted the tax deferral. The municipality of U.________ has appealed this decision.

Legal Analysis

The dispute centers on two issues: the existence of a self-employed professional activity and the classification of tax evasion.

1. Self-employed activity and the definition of a business : Managing one's own real estate assets goes beyond simple private wealth management and constitutes a self-employed professional activity (and thus a "business" within the meaning of restructuring law) when it is managed professionally and its scale (income, management costs) demonstrates a profit-oriented activity.
2. Tax evasion : According to case law, tax evasion is established when three cumulative conditions are met:
   1. (Objective element) The legal structure chosen by the taxpayer is unusual, inappropriate, or abnormal and does not correspond to economic reality.
   2. (Subjective element) The choice of this legal structure was made for the sole purpose of saving taxes. If there are serious economic motives other than tax-related ones, tax evasion is excluded.
   3. (Effective element) The procedure would effectively result in significant tax savings if accepted by the authorities.

Application to the case at hand

The Federal Supreme Court rejects the municipality's arguments.

Regarding the self-employed activity, the Federal Supreme Court recalls that in its first judgment (BGE 150 II 40), it already classified the real estate portfolio as a "business." This classification necessarily implies the existence of a self-employed activity that goes beyond simple private wealth management. The matter is therefore already settled. The taxpayer's reclassification of the properties from private wealth to business assets merely corrected the situation to align it with economic reality.

Regarding tax evasion, the Federal Supreme Court finds that the conditions are not met. The municipality's argument that the taxpayer only began a self-employed activity to benefit from the tax deferral is unfounded, as the activity already existed beforehand. Transferring a business from a sole proprietorship to a corporation is a restructuring operation explicitly provided for by law (Art. 19 para. 1 let. b DBG; Art. 8 para. 3 let. b StHG) and cannot, in itself, constitute tax evasion. Furthermore, the taxpayer had serious, non-tax-related economic motives for this operation, namely his estate planning. The subjective element of tax evasion is therefore absent.

Consequently, the administrative court was correct in granting the deferral of the real estate gains tax.

Issue

The Federal Supreme Court has dismissed the appeal filed by the municipality of U.________. The municipality is ordered to pay the court costs and must also pay legal fees to the taxpayer.

Silex tax newsletter published in collaboration with Anna Vladau, Attorney at Law