Switzerland: Intercantonal compensation for real estate losses recognized by pension funds

Compensation for losses in terms of tax on real estate gains for institutions exempt from income tax

Intercantonal compensation for real estate losses recognized by pension funds

According to art. 23 par. 4 of the law on the harmonization of direct taxes (LHID), pension funds are subject in all cases to tax on real estate gains. Such tax constitutes a separate and exclusive special tax. The question thus arises as to whether a loss resulting from a sale of real estate can be set off against a taxable real estate gain.

Art. 23 para. 4 LHID specifically provides compensation for losses in terms of tax on real estate gains for institutions exempt from income tax, even in the absence of a cantonal legal basis on this subject.

The judgment of the Federal Supreme Court (TF) of 5 July 2016 (2C_1080/2014) confirmed that such compensation was possible in the case of tax exempt institutions, but left some uncertainty as to whether a compensation of losses with gains resulting from the alienation of buildings located in another canton (intercantonal compensation) was possible.

The judgment of the TF of 28 January 2020 (2C_216/2019) clarified this question by finding that the losses from the sale of real estate realized in a canton could be attributed to real estate gains realized in another canton (in this case, Bern), even when the taxpayer is an exempt pension fund. 

Application to the French-speaking cantons

The cantons applying a monistic tax system (e.g., Bern) have more experience in cases of intercantonal compensation of losses from real estate transfers. However, most French-speaking cantons apply a dual tax system that does not provide for compensation of intercantonal losses in the event of alienation of real estate. Thus, those cantons could take the position that such compensation is not available for the separately levied tax on real estate gain recognized by tax exempt institutions.

Nonetheless, tax professionals expect that the French-speaking cantons, in particular the canton of Vaud, will also allow intercantonal compensation for losses resulting from the alienation of real estate recognized by tax exempt institutions.

Read a May 2022 report (French) prepared by the KPMG member firm in Switzerland

 

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