In its decision of December 7, 2023 (BGer 9C_312/2023), the Federal Supreme Court had to deal with transfer tax in the event of a change in the fund management of a real estate fund for the second time. In its second decision, the court supported and clarified the case law it had already issued in its leading decision BGE 148 II 121 (BGer 2C_624/2021 of March 28, 2022).
Facts of the case – levying of transfer tax on a change of fund management company
The fund management company of a real estate fund was entered in the land register as the owner under civil law of 15 properties located in the canton of Fribourg, whereby the fund affiliation was noted in the land register. In the course of the transfer of the fund management company to another fund management company, the latter was newly entered in the land register as the owner of these properties. The land registry levied transfer tax on the basis of this transaction.
Considerations of the Federal Supreme Court
In its new decision, the Federal Supreme Court ruled on the question of whether transfer taxes incurred in connection with a change of fund management can be charged to the fund assets. As in its first decision, the Federal Supreme Court initially recognized that there is no analogous prohibition, as provided for in Art. 103 FusG regarding the levying of transfer taxes in the event of restructuring, in the case of a change of fund management company.
It therefore came to the conclusion that the transfer tax can be levied as the properties change hands under civil law when the fund management company changes and the properties are transferred to the new fund management company in the land register. The court also stated that this tax can be charged to the fund assets if the fund contract expressly provides for this or if the change of fund management company is in the interests of the investors. Whether this is in the interests of the investors depends on whether the benefits of the change for the investors outweigh the costs. The assessment of the question of interest is the responsibility of the fund management companies involved in the conclusion of the transfer agreement and FINMA, which only approves the change if the continuation of the investment fund is in the interests of the investors. This ensures that investor protection is sufficiently taken into account, even if the investors have no interest in bearing the taxes associated with the change of fund management company.
Although the Federal Supreme Court recognizes that, depending on the amount, the levying of a transfer tax can represent a serious obstacle to a change of fund management and, depending on the amount, even to the continuation of the investment fund, the court is of the opinion that the removal of this obstacle is not within the competence of the courts, but that the federal legislator must take action here.
Outlook
With this decision, the Federal Supreme Court has for the second time protected and confirmed the practice of levying transfer tax on changes of fund management company. It remains to be seen to what extent this practice will prevail in other cantons. In any case, the levying of transfer tax or even real estate gains tax in the event of a change of fund management company for real estate funds appears to be highly critical. Such a transaction does not in any way manifest the economic performance associated with real estate performance that is to be skimmed off fiscally. In particular, there is no sale of real estate from the perspective of the fund or the investors. It would therefore be gratifying if this position, which has been confirmed by the Federal Supreme Court, were to be corrected in the near future.
In any case, it is strongly recommended that the tax consequences of a change of fund management company be analyzed in advance and ensured by means of a tax ruling. If a transfer tax cannot be avoided, it should also be examined whether passing on the transfer tax to the investors or the fund assets is in line with investor protection.
The Federal Supreme Court’s decision is damaging for the Swiss fund landscape. Many real estate funds are currently involved in reorganizing their structures. Such reorganizations are intended to strengthen the funds and Switzerland as a fund location, which is why tax obstacles should be avoided. At the same time, we note that the tax landscape is currently moving in the right direction when it comes to restructuring real estate funds and are maintaining a constructive dialog with the property tax authorities in this regard.