Facts
Spouses A. and B., who reside in Geneva, have been co-owners of a vacation apartment in France since 1995. In their tax return for the 2008 tax year, they reported a gross rental income (imputed rental value of the French property) of 4,500 Swiss francs for cantonal and municipal taxes and 7,500 Swiss francs for direct federal tax, as well as maintenance costs and expenses of 75,941 Swiss francs for cantonal and municipal taxes and 77,540 Swiss francs for direct federal tax, as well as mortgage interest of 5,970 Swiss francs. The tax administration of the Canton of Geneva has only taken the expenses into account for the determination of the tax rate, in contrast to its practice for the 2007 tax year. Spouses A. and B. have filed a complaint against this practice, which was dismissed by the Administrative Court and the Cantonal Court of Geneva. Thereupon, spouses A. and B. filed a public law appeal with the Federal Supreme Court, requesting that the losses incurred abroad be taken into account in the assessment of direct federal tax, cantonal and municipal taxes.Considerations
5. The Federal Supreme Court dismissed the appeal. 5.1 The Federal Act on the Harmonization of Direct Taxes of the Cantons and Municipalities (StHG) regulates the tax liability based on personal connecting factors in Art. 3. In contrast to the Federal Act on Direct Federal Tax, the StHG does not contain a provision on the scope of this tax liability. It therefore does not regulate the question of whether losses incurred abroad can be deducted from the taxable income in Switzerland. However, it cannot be concluded from this that the cantons have regulatory autonomy in this respect, as this is a matter whose harmonization is expressly provided for in the Federal Constitution. Since the Canton of Geneva has adopted the rules of Art. 6 of the Federal Act on Direct Federal Tax in Art. 5 para. 1 and 4 of the old Act on the Taxation of Natural Persons (aLIPP-I), the question can be left open here. 5.2 The Cantonal Court has decided that the Double Taxation Agreement between Switzerland and France does not contain any provisions that would allow the deduction of interest on debts or surpluses of maintenance costs for properties. At the cantonal level, Art. 5 para. 4 aLIPP-I, which was applicable for the 2008 tax year, had the same wording as Art. 6 para. 3 of the Federal Act on Direct Federal Tax, which, according to the parliamentary materials, represented a conscious alignment with federal law for the purpose of vertical harmonization. Therefore, the excess of expenses could not be deducted from the taxable income in Switzerland. 7. The appellants argue that the refusal to deduct the excess of expenses in connection with their property in France violates the principle of taxation according to economic capacity and the right to equal treatment compared to taxpayers who are owners of a property in another canton. 7.1 According to Art. 127 para. 2 of the Federal Constitution, the principles of universality, uniformity and taxation according to economic capacity must be observed in Switzerland. 7.2 In assessing whether a tax law meets these constitutional requirements, it must be taken into account that this question depends on the political, social and economic circumstances. The legislator has a wide margin of discretion in this regard. 7.3 It is the task of the legislator to design the tax system, balance value conflicts and concretize the principles of taxation in order to create precision, predictability and legal certainty in the tax regulation. 7.4 In order to implement the principle of taxation according to economic capacity, the federal legislator has, among other things, enacted Arts. 6 para. 1, 16 DBG and 7 StHG. These provisions express the principle of taxation of total net income. 7.5 However, the Geneva legislator has introduced an…