Strategic game changer: Federal Supreme Court revises practice regarding tax sovereignty

Already decided in April 2025, but more relevant today than ever: for clients with substantial domiciles that use real work, administrative, and decision-making structures, this ruling is now taking full effect in practice.

In its ruling 9C_607/2022 of April 1, 2025, the Federal Supreme Court provided clarification that is crucial for practice:

A tax domicile decision is not a final decision, but rather a preliminary or interim decision on jurisdiction. It does have a binding effect in terms of formal procedural law, in that jurisdiction cannot be contested again in the ongoing proceedings. However, it expressly does not have substantive legal force, particularly in the sense of res judicata.

In concrete terms, this means that even if a canton has established its tax sovereignty in a separate decision and this decision has remained unchallenged, the tax authority may not waive objections in subsequent assessment proceedings if these objections raise substantive complaints.
These include, in particular, objections to subjective tax liability, profit attribution, obvious misinterpretation of the assessment, and the prohibition of inter-cantonal double taxation (Art. 127 para. 3 BV).

The Federal Supreme Court has thus effectively overturned a restrictive practice that had been in place for years. Tax domicile decisions are binding on the tax authorities in terms of their jurisdiction, but not in terms of their substantive taxation powers. Decisions not to proceed with a case on the grounds of the alleged legal validity of earlier tax jurisdiction decisions are contrary to federal law.

The ruling has significant implications for consulting practice – particularly in relation to holding structures, single-member companies, letterbox companies, and conflicts between registered office and domicile. Taxpayers' legal protection has been strengthened; the cantons are required to examine substantive objections even if they have previously affirmed their tax sovereignty.

What does the ruling mean in concrete terms for clients residing in Zurich and companies based in Zug?

1) No more formal abbreviations through Zurich
The canton of Zurich can no longer rely on previous tax domicile decisions in the assessment procedure. It must examine the substance of the case to determine whether the company is liable for tax in the canton of Zurich at all.

2) Residence alone is not sufficient
The owner's residence in Zurich does not justify automatic profit allocation. The decisive factors are substance, operational activity, decision-making processes, and value creation at the company's registered office (e.g., Zug).

3) Appeals remain an effective instrument
Appeals can be made on substantive grounds: double taxation, lack of subjective tax liability, and incorrect profit allocation must be examined. Formal decisions not to hear a case lose their deterrent effect.

Impact on the initial practice of tax offices

4) Greater caution in early domicile decisions
If no tax domicile decision has yet been made, the authorities know that a hasty or poorly justified decision will not protect them later on. This reduces their willingness to simply link the owner's place of residence to the domicile.

5) More fact-checking from the outset
Zurich (and other cantons) must clarify the following points clearly in the initial assessment:
– where decisions are made,
– where operational activities take place,
– where value is created.
These points can no longer be disputed retrospectively.

Advantage in consulting and negotiations

6) Stronger position in the early stages
We can make substantive arguments at an early stage (substance in Zug, governance, operational reality) and, in practice, more often achieve:
– a waiver of a tax domicile decision, or
– a narrowly defined decision, or
– an appropriate intercantonal division instead of an escalating head-on conflict.

In short:
The ruling shifts the balance of power away from formal blockades and toward substantive review. This is a real strategic advantage for well-structured Zug companies with residents in Zurich.

Further context:
https://x.com/zugtrust/status/2021117165055701082

FAQ – Formal non-admissibility:
Formal non-admissibility means that the authority refuses to examine the substance of the case – precisely this abbreviation is no longer permitted under the new Federal Supreme Court ruling on key tax issues.

Federal Supreme Court ruling 9C_607/2022 of April 1, 2025, confirmed and clarified by BGE 151 II 657, represents a significant change in the practice of intercantonal tax disputes. It considerably strengthens the legal protection of taxpayers, especially in cases where tax jurisdiction between cantons is disputed.

Hashtags:
#Federal Court #Tax law #Tax domicile #Intercantonal double taxation #Assessment #Subjective tax liability #Profit attribution #Legal protection #StHG #BV127 #Swiss tax practice #Zug #Zurich #Corporate structure #Holding structures

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