What is it about?

Capital gains from the sale of movable private assets are tax-free in accordance with Art. 16 para. 3 DBG and analogous cantonal legal provisions. However, if capital gains generated by private individuals in the context of self-employment are derived from business assets, they are subject to income tax (Art. 18 para. 2 DBG and analogous cantonal provisions) and also trigger the social security contribution obligation. Accordingly, the distinction between private and business assets and the qualification of an activity as private asset management or as self-employment is of considerable practical relevance.

The sale of shareholdings in corporations is also affected by this issue. In contrast to securities trading, investments in the share capital of at least 10 per cent are sold when trading in participations. The Federal Supreme Court applies various criteria to differentiate between private and business assets, which lead to an overall assessment of the individual case. In extreme cases, a single transaction may already qualify as commercial investment trading for tax purposes. Two recent Federal Supreme Court judgements illustrate the issue.

Case 1: Taxable capital gain (participation in business assets)

In the judgement 9C_403/2023 of 25 June 2024, a taxpayer reported shares in companies that held mining rights in Guinea-Bissau (Africa) in his tax returns from 2007 to 2009. During this time, he worked as a project developer for these companies and financed them with shareholder loans totalling several hundred thousand Swiss francs, among other things. He was formally responsible as Chairman, Managing Director and member of the Board of Directors. Among other things, as “Chairman” he signed an agreement with the local government regarding the implementation of geological investigations. In the course of the realisation of a mining project and the takeover of the companies by a strategic investor brokered by a bank, the taxpayer sold a 42.9 percent share package in 2011.

The Federal Supreme Court confirmed the judgement of the lower court, according to which the sale of shares was to be assessed as commercial investment trading. Firstly, it stated that in the case of persons who are employed full-time, avocational commercial investment trading only applies in rare cases. However, this could also be affirmed if only one shareholding was sold. The debt financing, the (entrepreneurial) risk taken and the systematic and planned approach play an important role here. The amount of profit actually realised is less important. In the present case, the Federal Supreme Court based its judgement on the fact that the taxpayer made great personal efforts over a long period of time and was directly involved in the project development. He had taken considerable entrepreneurial and financial risks and had contributed industry-specific knowledge to the project development.

Case 2: Tax-free capital gain (participation in private assets)

Decision 9C_454/2023 of 11 December 2024 concerned a lawyer who was both self-employed and employed, who in the mid-1990s invested in several companies in need of restructuring, saved them from bankruptcy and then took a seat on the board of directors. In 2012, together with business partners, he bought another company that was in financial difficulties. Among other things, the lawyer granted the company a loan from his personal assets. He managed to avert bankruptcy and sell the company at a high profit in 2015.

According to the Federal Supreme Court, the allocation of a shareholding to business assets requires a sufficiently close relationship to the business activity. It confirmed that self-employed lawyers are not prevented from holding their clients’ securities as private assets. Accordingly, in the present case, the lawyer’s activities for the company, the repeated advice, the investment activities and the seat on the Board of Directors were not sufficient evidence per se to attribute the sold shareholding to the lawyer’s business assets. The co-operation with business partners, the acquisition of the shareholdings via business contacts and the successful sale also did not serve the lawyer’s activities. A concrete benefit or purpose for the improvement of the business activity as a lawyer was not apparent.

Conclusion

The allocation of an investment to the private assets or business assets of a private individual can be problematic depending on the constellation. Ultimately, it boils down to a case-by-case assessment based on general criteria, as we know them for the more familiar issues of commercial real estate trading or commercial securities trading.

Until a few years ago, it was taken for granted that the sale of a qualifying investment by a private individual was tax-free. In practice, however, taxable, commercial investment trading is becoming increasingly common. Analysing the specific circumstances of the individual case can help to classify tax risks.

ADB Altorfer Duss & Beilstein AG

Your contact persons, Fabian Duss und Mathias Häni, look forward hearing from you.