In a judgment delivered on 7 March 2017, the Swiss Federal Supreme Court rejected an appeal brought by the Federal Tax Administration (FTA) against a ruling given by the lower instance court (the Federal Administrative Court). This ruling had stated, that for Swiss federal transfer stamp duty purposes, the secondary market trade of taxable securities carried out by a "grantor trust" set up under US laws by a Swiss pension fund could not be attributed directly to the Swiss grantor (settlor) and beneficiary of the US trust. Accordingly, such trades were not subject to Swiss federal stamp duty on the transfer of securities for consideration (Supreme Court Decision no. 2C_996/2015). The judgment provides a welcome confirmation and clarification of the legal character of the federal stamp duty payable on such transfers of securities. It makes it clear that this is an indirect tax imposed on legal transactions, which is governed by legal form rather than any consideration of the economic substance behind the transaction.

A Summary of the Facts and Legal Positions Taken by each Party and the Lower Court

1 Basic facts

The case concerned a qualified tax-exempt Swiss pension fund making indirect investments into certain "Common Trust Funds" ("CTFs") under US law, following receipt of investment proposals from a US bank. For that purpose, the pension fund settled a "grantor trust" (a discretionary and revocable trust) under applicable US law and appointed the US bank as trustee. The pension fund remained the main beneficiary of the trust. The US bank acting as trustee then invested the trust capital into CTFs, which for Swiss tax purposes were likened to foreign collective investments (i.e. units in a foreign investment fund). For Swiss federal stamp duty purposes, both Swiss and foreign investment fund units or shares are taxable instruments. The legal transfer of taxable instruments for a consideration is subject in principle to federal transfer stamp duty, where a Swiss securities dealer, as defined for stamp duty purposes, participates in the trade either as a party or as an intermediary. Swiss pension funds are qualified as "securities dealers".

2 The advance tax ruling

The pension fund had obtained an advance tax ruling from the FTA for stamp duty purposes back in 2003. Essentially, the tax ruling confirmed that, even though the CTF units were substantially comparable to investment fund units/shares (i.e. taxable instruments), the actual investment process involved two stages: (a) the initial settlement of the trust and (b) the actual investments made through the trust (i.e. by the US trustee) in the CTF units. On that basis, the tax ruling confirmed that the pension fund was not in fact acting as a "securities dealer" in the course of its ordinary operations. This meant that no transfer stamp duty would be due on the purchases and sales of CTF units through the trustee.

3 The tax audit and the FTA's change of position

However, in 2010 the FTA began an audit of the pension fund and determined on 28 December 2011 that it had directly recorded the CTF units as assets in its accounts. In the FTA's opinion this meant that the pension fund itself had to be seen as the owner of the CTF units, requiring the direct attribution of the purchases and sales of such units to the pension fund for stamp duty purposes. Based on that conclusion, the FTA revoked the earlier tax ruling with retrospective effect as of 1 July 2007. On 15 March 2013 the FTA issued its formal decision, requesting the pension fund to pay transfer stamp duties totaling CHF 43,834 on trades of CTF units made between Q3/2007 and Q4/2010, plus a further 5% p.a. in late payment interest. The trades in question were obviously carried out by the US bank as trustee for the grantor trust.

4 The litigation

The FTA dismissed a formal objection against that decision by the pension fund on 28 March 2014. The pension fund then decided to file an appeal to the Federal Administrative Court, which ruled in its favour on 29 September 2015. The Administrative Court essentially confirmed the "formal nature" of the federal stamp duties (a legal transaction tax) arguing that the pension fund was not the legal owner of the trust property and accordingly had never acquired legal title to the CTF units. The FTA appealed against that lower court ruling to the Supreme Court, but went on to suffer a further defeat.

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