The Federal Supreme Court clarified its case law on the burden of proof for the main tax domicile of legal entities in the intercantonal context (decision of 2 April 2024, 9C_591/2023).
Facts of the case
A legal entity had moved its registered office from the canton of St. Gallen to the canton of Appenzell Ausserrhoden. However, it still had significantly more premises and infrastructure in the canton of St. Gallen than in the canton of Appenzell Ausserrhoden. The Federal Supreme Court therefore came to the conclusion that the place of effective management and therefore the main tax domicile of the taxpayer remained in the canton of St. Gallen. The appeal of the taxpayer was dismissed.
Previous case law
If a legal entity has its registered office and place of effective management in two different cantons, its main tax domicile is located at the place of effective management.
When determining the place of effective management as a taxable fact, the burden of proof generally lies with the tax authority. According to previous case law, however, the burden of proof could be transferred to the taxpayer if the place of effective management in the canton appears to be “very likely”. The taxpayer has then to provide evidence to the contrary (reversal of the burden of proof).
Adjusted case law
According to the Federal Supreme Court, the previous transfer of the burden of proof to the taxpayer is in conflict with the investigation maxim (according to which the burden of proof generally lies with the tax authority).
However, no conflict arises if the burden of proof is eased (i.e. the standard of proof is lowered) for the tax authority instead. An ease of the burden of proof is permissible for facts for which full proof is not possible or reasonable.
According to the Federal Supreme Court, the place of effective management is such a fact, which means that the taxpayer has to provide the evidence.
Furthermore, it is no longer required that a fact appears to be “very likely”, but “predominantly likely” in order to ease the burden of proof. The decision does not explain how this change in wording is to be understood.
Outlook
It remains to be seen how the Federal Supreme Court will rule in less clear situations in the future and how the wording “predominantly likely” will be interpreted.
For legal entities with business activities in several cantons or when relocating their registered office to another canton, it is therefore advisable to keep appropriate documentation relating to the place of effective management (proof of substance, e.g. premises, personnel, other infrastructure as well as activities and value creation) available at the registered office.