Facts
The taxpayer, a lawyer who had worked as a self-employed notary for many years, gave up his notarial activities at the age of 67. In his tax return for the year 2011, he declared income from self-employment of around 1.1 million Swiss francs. He had deducted unfinished work of around 1.2 million Swiss francs, as he considered these to be realized hidden reserves that, in his view, should be subject to a separate privileged annual tax in the following period 2012.
The tax authorities, however, counted the amount of the unfinished work as ordinary income, which was confirmed by the Administrative Court of the Canton of Aargau. The taxpayer appealed against this decision to the Federal Supreme Court.
Considerations
The Federal Supreme Court dismissed the appeal. It stated that for the privileged taxation of realized hidden reserves under Art. 11 para. 5 of the Harmonization Act (StHG), a sufficiently close causal link between the liquidation of the business and the realization of the hidden reserves is required. This connection was not given in the present case, as the capitalized unfinished work constituted ordinary operating income that would have been invoiced in the foreseeable future, regardless of the liquidation.
The Federal Supreme Court clarified that the accounting nature of the hidden reserves - whether they are current or…