Relevant date for establishing economic affiliation in the acquisition of real estate

Bucher Tax AG, Switzerland, taxes, national taxes, income tax, real estate, property, tax domicile, Lucerne, Zug, private individuals, federal court decisions, tax planning, tax consultancy

In the tax period 2013, the married couple A.C. and B.C. had their tax-relevant domicile in the municipality U. in the Canton of Zurich. At the beginning of the same year, they concluded a contract with E. AG and V. AG regarding a condominium property still to be developed in the municipality W. in the Canton of Aargau.

The contract was entered in the land register in March 2013. The development of the property should be completed by 1 July 2014 at the latest and be ready for the couple to move in. The total purchase price for the property amounted to CHF 818'000, of which advance payments of CHF 163'000 and CHF 80'000 were already made in 2013. The final payment was made before the keys were handed over on 20 June 2014.

In the summer of 2016, the tax commission of the municipality of W. in the Canton of Aargau determined the economic affiliation of the married couple for the year 2013 on the basis of the acquired real estate. The couple lodged an appeal against this decision with the tax commission and further lodged appeals and com-plaints with the competent administrative courts of the canton (Special Administrative Court and Admini-strative Court). The Administrative Court of the Canton of Aargau argued that the purchase agreement at the beginning of 2013 already triggered the economic affiliation of the married couple to the Canton of Aargau. The authority to dispose of the real estate had already been legally transferred. Also, no taxation was applied on the part of the seller, which indicated that the buyers were subject to taxation. Furthermore, the Administrative Court referred to the Federal Court's practice regarding the realisation upon conclusion of a purchase agreement.

The couple was not satisfied with these arguments made by the Administrative Court and appealed to the Federal Supreme Court in February 2018 in public law matters, with the petition that the taxation of the couple in 2013 by the municipality of W. in the Canton of Aargau should not be permitted for lack of econo-mic affiliation. The Federal Supreme Court dismissed the appeal by decision of 21 February 2018(2C_133/2018) with the following reasons.

Legal harmonisation requirements

In its considerations, the Federal Supreme Court first addressed the harmonisation requirements with re-gard to economic affiliation and the effects on tax liability (Art. 4 para. 1 StHG). According to the Federal Court, the prohibition of intercantonal double taxation pursuant to Art. 68 para. 2 StHG must also be ob-served in this context.

Relevant date of the acquisition of real estate

The Federal Supreme Court then examined whether the lower instance had come to the conclusion in con-formity with federal law that the complainants had already acquired real estate in the Canton of Aargau in 2013 and, as a result, established economic affiliation and a limited tax liability. In the process, it examined the tax regulations of the Canton of Aargau. Section 20 para. 1 sentence 1 of the tax law, which is based on the DBG, stipulates that the limited tax liability commences when taxable assets are acquired in the canton.

In the case at hand, the purchase agreement between the parties was concluded on 20 February 2013.

According to the Federal Court, the qualification of the contract is irrelevant from a tax point of view. How-ever, the entry in the land register of 25 March 2013 was decisive. On that date, the complainants acquired legal authority to dispose of the property by entering it in the land register. The fact that the transfer of ow-nership and risk should not take place until July 2014 does not contradict this.

The Federal Supreme Court also addressed the divergences in the wording of Art. 4 para. 1 StHG with

respect to Art. 4 para. 1 lit. c DBG. Article 4 para. 1 of the StHG, which is relevant in this case, defines eco-nomic affiliation on the basis of «ownership» and «benefit». Thus, the wording is narrower than Art. 4 para-graph 1 lit. c DBG. However, the standard sense of both regulations as the decisive interpretation result is relevant and, in this case, the same with the acquisition of the real estate. From this, the Federal Supreme Court concluded that economic affiliation to a community already occurs with the acquisition of real estate. The lower instance had thus decided in accordance with federal law that the complainants had already be-come economically affiliated in the Canton of Aargau in 2013.

Double taxation is not evident

A further objection raised by the complainants, namely that the taxation in 2013 in the Canton of Aargau would result in a double taxation for them, is answered by the Federal Supreme Court as follows: With re-ference to the explanations given by the lower instance regarding the payments made by the complainants to E.AG and V.AG (seller), it noted that the sellers had only received book money. As a result, taxation only arose at the level of the landowner. The complainants' argument regarding double taxation was therefore also erroneous.


For all the above reasons, the Federal Supreme Court concluded that the Canton of Aargau was permitted to consider the couple as economically affiliated as early as 2013. Therefore, the acquisition with land re-gister entry and thus the legal authority to dispose of a property is decisive. If a property continues to be

developed and ownership and the actual power of disposal only take place at a later date, this does not hinder economic affiliation.