Can a corporation write off a donation?

If a corporation wants to make a tax-effective depreciation, it must be commercially justified and in accordance with the company's purpose. Therefore, the donation of an asset cannot be depreciated, as a corporation only provides its services for economic reasons, not for the benefit of a person.

For depreciation to be tax-effective, it must be commercially justified. A cost is commercially justified if it serves the business or entrepreneurial purpose of the company, either directly or indirectly. A corporation provides its services only for economic reasons, not for the benefit of a person. Therefore, a gratuitous transfer of an asset (donation) does not meet the business purpose and thus cannot be depreciated. In the judgment 2C_655/2018 of August 22, 2018, the Federal Court decided on the legality of a depreciation. A joint-stock company from the canton of Zurich had donated a stake in a German company worth 1'764'560.15 Fr. to a foundation in Germany in 2013. This donation was fully written off by the Zurich AG, which was not accepted by the Zurich tax authorities. The AG filed an objection, but the Administrative Court of the Canton of Zurich also dismissed the complaint, prompting the AG to proceed to the Federal Court.

The Federal Court followed the argumentation of the lower instance: A corporation generally gives nothing away. Its services are provided for economic reasons, not with the aim of benefiting a person. Therefore, the company's transactions must withstand a third-party comparison. Thus, in the present case, the AG would have had to transfer the participation to an independent third party free of charge, which is not to be assumed. Therefore, such a donation cannot be justified on commercial grounds.

However, if the participation had been depreciated annually using the periodicity principle and had reached a value of zero by 2013, such a gratuitous donation would have been allowed. At the time of the transfer, however, it still had a book value of 1'764'560.15 Fr.

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