Partnership: Business or Private Assets?

The Administrative Court of the Canton of Glarus classified assets that had been assessed as business assets of a partnership for years as private assets, as it saw in the transfer of the assets a tax avoidance. The Federal Court disagreed.

In the judgment of April 25, 2017 (2C_41/2016, 2C_42/2016) the Federal Court dealt with the question of whether a cantonal tax authority was allowed to qualify assets of a newly arrived company, which were allocated to business assets by another canton for years, as private assets. In the present case, A. is a partner of the limited partnership X. This company was based in the Canton of Schwyz until 2011 and has since been located in the Canton of Glarus. In January 2013, A. declared a net asset value of 399,388 CHF for the tax period 2011 for X. Shortly thereafter, the tax office of St. Gallen notified the Glarus tax administration that the net assets of X. included promissory notes worth 100,000 CHF, which A. had contributed as a capital contribution. Thereafter, the Glarus tax administration treated these promissory notes in the final assessment as private assets, as there was no connection to the activities of X. evident. A. claimed a violation of good faith (Art. 9 BV) by the allocation of the promissory notes to his private assets, as the tax administration would have been bound by the legally binding assessment decisions from previous years. In previous years, the Schwyz tax authorities had assigned the promissory notes to business assets because A. had declared them as such. And the Glarus authorities had also handled this in the tax period 2010 likewise. The Federal Court rejected this and stated that the tax authority within the scope of every new assessment of a taxpayer can fully review and differently assess both the actual and legal situation. The tax authority is only bound if, under unchanged circumstances, a long-accepted qualification exists, which was not the case here since it was only the second time assessed in the Canton of Glarus. And allocation decisions from another canton must only be adopted if they are based on a thorough investigation, which was also not the case here. The lower court assigned the promissory notes to the private assets, as they were not justified in the name and on account of X. Furthermore, X. had never appeared before the two debtors and had never been commercially active as a collection agency in the past.

Unlike for example a corporation, there is no business assets of the partnership itself in a partnership like the limited partnership, but only business assets of the individual partner. The assets of the partner must thus be differentiated between private and business assets. According to Art. 18 para. 2 DBG, business assets include all assets that serve predominantly or exclusively for independent earning activities. Whether an asset serves such a purpose is ultimately determined solely by the will of the taxable person. However, inclusion in the business balance sheet is a strong indication according to the Federal Court. In the present case, A. had transferred the promissory notes to X. and declared them in X.'s balance sheet, which is why the Federal Court ultimately considered them as business assets. The question of whether the promissory notes were booked at too high a value was not addressed. The Federal Court decided to uphold the complaint and referred it back to the lower court for reassessment.

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