Facts
X. Finanz AG, a 100% subsidiary of X. Holding AG, maintained a permanent establishment in the Cayman Islands. A "ruling" dated August 10, 1999 between X. Holding AG and the tax administration of the Canton of Zug exempted the profits attributable to the foreign permanent establishment from taxation in Switzerland. Until and including the 2004 tax year, the tax administration fully allocated the net financial income of X. Finanz AG from lending to group companies in favor of the permanent establishment in the Cayman Islands.
In 2005, the cantonal tax administration informed X. Finanz AG that the Federal Tax Administration (FTA) was of the view that no business activity within the meaning of a permanent establishment was being carried out in the Cayman Islands. Accordingly, the FTA had instructed the cantonal tax administration to refuse the international tax allocation in relation to the branch in the Cayman Islands from January 1, 2005.
In the following years, there were appeals, complaints, and court proceedings between X. Finanz AG, the cantonal tax administration, and the FTA.
Considerations
The Federal Supreme Court held that the FTA has no authority to make binding determinations regarding the tax treatment of planned circumstances in the form of a "ruling". Rather, the cantonal assessment authorities are generally solely responsible for issuing "rulings", apart from certain exceptional constellations, and the approved "rulings" are binding on the FTA until any possible revocation.
The Federal Supreme Court concluded that the "ruling" of August 10, 1999 can generally give rise to protection of legitimate expectations, as the appellant presented and implemented the facts as they were the basis of the "ruling". However, the…