Facts
A.X. and B.X., French nationals domiciled in the canton of Geneva, are the owners of a villa in Switzerland and a secondary residence in France. In their 2008 tax return, they reported passive interest of 159,360 Swiss francs related to the French property. The Geneva tax authorities made a recapture of 52,346 francs, corresponding to the excess of these passive interests over the net yield of the French property.
The taxpayers appealed against this decision, which was confirmed by the cantonal authorities. They then filed a public law appeal with the Federal Tribunal.
Considerations
The Federal Tribunal dismissed the appeal. It considered that, according to Article 6 paragraph 3, 3rd sentence, of the Federal Act on Direct Federal Tax (LIFD), an excess of passive interest related to a property located abroad constitutes a "loss incurred abroad" which cannot be taken into account in the calculation of the taxable base in Switzerland, but only for the determination of the tax rate.
The Federal Tribunal rejected the taxpayers' argument that this rule would violate the principle of free movement of persons and would be contrary to the case law of the Court of…