In its decision of 14 October 2022 (2C_804/2021), the Federal Supreme Court ruled that expense regulations approved by the canton of the employer’s domicile are also binding for the tax authorities of other cantons.
The facts
The Federal Supreme Court had to examine the case of an employee residing in the Canton of Vaud who worked for an employer domiciled in the Canton of Geneva. Based on the expense regulations approved by the cantonal tax administration of Geneva, the employer paid a lump-sum expense allowance of CHF 18,000 for the business use of a private vehicle and reported it accordingly on the salary statement. In addition, the employee claimed his commuting expenses (also amounting to CHF 18,000). The tax administration of the Canton of Vaud wanted to requalify the reimbursement of expenses as taxable income and also did not want to allow the deduction of travel expenses.
Considerations of the Federal Supreme Court
In its considerations, the Federal Supreme Court relies primarily on sources under private law, since the concept of expenses is not explicitly defined in tax law. Thus, the Federal Supreme Court states that, according to the Swiss Code of Obligations, the employer is obliged to reimburse the costs incurred by an employee for a business journey with his or her private vehicle. A business journey is understood to be the distance between the place of work and the place of performance of the contract, which is covered in the name of and on behalf of the employer. According to established case law, the reimbursement of these costs does not constitute income of the employee, as it does not lead to an increase in the net assets of the person entitled to the benefit. This can be problematic with lump-sum expenses, as these do not reflect the actual costs incurred. In this case, the difference between the employee’s actual expenses and the lump-sum expenses paid is generally taxable as additional income.
However, according to the Federal Supreme Court's considerations, this problem does not exist if, as in the present case, the (lump-sum) expense regulations have been approved by the tax authority of the employer's canton of domicile. In the assessment procedure for the employee's income taxes, the tax authority may no longer examine the reasonableness. It may only determine whether the amount of the expenses paid corresponds to the amount of the lump-sum expenses provided for in the expense regulations and is indicated as such in the salary statement of the person concerned. Approved lump-sum expense regulations must be unconditionally accepted and observed by tax authorities in the individual assessments of the employees.
As the Federal Supreme Court then states, this also applies if an employee does not reside in the same canton as the employer. Even though the expense regulations have not been approved by the tax authority at the employee's place of residence, it must comply with them in good faith.
Appreciation
With this decision, the Federal Supreme Court confirms the principle set out in paragraph 54 of the salary certificate guidelines, according to which expense regulations approved by the canton of the employer’s domicile must be recognized in all cantons. The Federal Supreme Court thus puts a stop to the practice of some cantons to disregard expense regulations approved by other cantons. For example, the canton of Solothurn only allows lump-sum expenses for representation purposes up to an amount corresponding to a maximum of 5% of the gross salary of the recipient. Any difference exceeding this amount is charged to the lump-sum recipient as income by the Solothurn tax authorities. This procedure will no longer be possible in the future, since, as stated in the Federal Supreme Court ruling, the lump-sum expense regulations approved outside of the canton are binding for all Swiss tax authorities and they no longer have to check the appropriateness of the expenses paid when assessing the employees.
Therefore, the present decision not only ensures legal certainty, it can also be seen as a win for the attractiveness of Switzerland as a business location. With the new case law, employers can (continue to) make expense arrangements tailored to their employees in order to contribute to the attractiveness on the labor market. Since the expense regulations negotiated by the employer (and approved by the tax authorities) are binding for tax purposes in all cantons, employees can rely on them regardless of their place of residence.
Finally, with this leading decision intended for publication, the Federal Supreme Court makes an important contribution to preventing legal fragmentation in connection with approved expense regulations by avoiding expenses from being treated differently for employees residing in different cantons.
