Permissible amount of property depreciation

Ordinary depreciation should correspond to the actual ongoing reduction in value of the tax object. In the case of real estate, depreciation is only justified if its value decreases due to usage or the passage of time. The burden of proof that the amount of depreciation is not justified on a business basis lies with the assessment authority.

In the judgment BGer 2C_814/2016, 2C_815/2016 of October 26, 2017, the Federal Court dealt with the dispute between the real estate company A. AG and the Schaffhausen tax administration. A. AG had made depreciations on a rented residential building in 2010 and 2011, which the tax administration did not accept. Because of these depreciations, the book value of the residential building fell below the tax value, whereby according to long-standing practice no more depreciations could be made. A. AG did not accept this and took the case to the Higher Court of Schaffhausen. The Higher Court affirmed the admissibility of the depreciations on the grounds that they were within the depreciation rates of the Federal Tax Administration (ESTV). Within these rates, depreciations are always justified on a business basis, even when the resulting book value obviously falls below the real value. The lower limit of the value for permissible depreciations is formed by the land value. The tax administration then took the case further to the Federal Court, where it argued that the assumption that depreciations made within the ESTV framework were justified was only a presumption. The boundary of generally permissible depreciations is formed by the tax value. If it falls below this, the taxpayer must prove that the depreciation is justified on a business basis, which A. AG did not do in the present case.

The Federal Court dismissed the complaint of the tax administration. The tax recognition of a depreciation can only be denied if the depreciation rate is constantly too high or if the value of the property does not decrease long-term. The view of the tax administration that depreciations, by which the book value falls below the tax value, are generally not justified on a business basis and thus not permissible, goes too far. Unlike the Higher Court of Schaffhausen, the Federal Court said that not all depreciations, through which the resulting value obviously falls below the real value, are to be accepted. However, the proof of lack of justification lies with the assessment authority. In the present case, however, it has neither proven that the cantonal tax values for properties in the canton of Schaffhausen are generally significantly and permanently too low, nor that A. AG has consistently depreciated its property too much. For these reasons, the depreciation is permissible.

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