Principal tax domicile of a legal entity

Legal entities are generally taxable at their registered office. However, if there are other company locations in other cantons, it must be determined where the main tax domicile is located. Although it is assumed that this is at the company's registered office, the place of actual management takes precedence over the registered office in cantonal tax law.

In principle, each legal entity is taxable at its registered office. However, if there are additional company locations, additional tax domiciles may arise and it must be distinguished between the main tax domicile and secondary tax domicile(s). While companies are interested in being taxed at the most fiscally attractive domicile, the cantons do not want to forego tax revenues that are due to them. This often results in conflicts that must be resolved in view of the prohibition of double taxation. On February 1, 2019, the Federal Court ruled on a case 2C_627/2017, in which the location of the main tax domicile was the issue. A corporation founded in Zurich in 2007 moved its headquarters to the canton of Obwalden in 2008. For the tax periods 2009 and 2010, it applied for 32.5% of the profit to be attributed to the new canton of residence. The canton of Obwalden followed this request, but the canton of Zurich refused it and insisted on taxing all tax factors in Zurich. It relied on Art. 20 para. 1 of the Tax Harmonization Act, according to which a company is personally affiliated to a canton and therefore subject to unlimited tax liability if its registered office or actual management is located in the territory of this canton. According to the canton of Zurich, the actual management of the company continued to be in Zurich, as the executive and all other employees of the corporation performed their activities predominantly in Zurich, from where the ongoing business was managed, and where therefore the real leadership of the company was located. The corporation, on the other hand, pointed out that general meetings, board meetings, and certain administrative activities took place in Obwalden, which is why it took the tax decision of the canton of Zurich all the way to the Federal Court.

The Federal Court noted that while the main tax domicile is generally located at the seat of the legal entity, this should be deviated from if the seat in another canton is opposed by a place where the management and administration, i.e., the leading activity, normally taking place at the statutory seat, actually occurs. If the other canton then proves that the place of actual management is on its territory and not in the seat canton, the seat canton is deprived of the unlimited tax sovereignty over the legal entity.

Although the corporation had rented premises in Obwalden that were actually used, it remained unclear to what extent and for what purpose they were used, while according to the facts, the real, actual center of the economic existence of the corporation was located in Zurich. For these reasons, Zurich rightfully falls under tax sovereignty, which is why the Federal Court dismissed the complaint of the corporation.

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