Circular No. 43 – Part 2: Legal Foundations

The Circular No. 43, which came into force on February 26, 2018, regarding the tax treatment of prizes, honorary gifts, awards, scholarships, and support contributions in the cultural, sports, and scientific sectors is particularly relevant with respect to two articles of the Federal Act on Direct Federal Taxation (DBG).

The Federal Act on Direct Federal Taxation (DBG) does not directly address the tax treatment of prizes, honorary gifts, awards, scholarships, and support contributions in the cultural, sports, and scientific sectors. However, the DBG is structured based on the principle of total income taxation. This principle is upheld in Art. 16 para. 1 DBG, which states that all recurring and one-time income is subject to direct federal tax. However, there are exceptions to this rule, which are set out in Art. 24 DBG. With respect to Circular No. 43, specifically the exceptions under Art. 24 items a and d DBG are relevant. Under item a, the accrual of assets due to a donation is exempt from direct federal tax. However, cantonal gift tax may still apply. Item d declares support from public or private funds as tax-exempt.

The confirmed jurisprudence of the Federal Court states that the interpretation of the exceptions listed in Art. 24 DBG must be restrictive. Whether a contribution can be subsumed under Art. 24 items a and d DBG must therefore be decided on a case-by-case basis and depends on all the circumstances. The criteria used for assessment are discussed in Part 3.

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