Rejection of the Participation Deduction on Capital Gain

Facts

[X. AG] (the Taxpayer) held a 23.55% participation in [Z. SA] . In the 2011/2012 fiscal year, it sold a 1.25% share, resulting in a net profit of around 2.7 million Swiss francs. The Taxpayer claimed the participation deduction in its tax return, which was rejected by the Cantonal Tax Office of Nidwalden. The Administrative Court of the Canton of Nidwalden dismissed the Taxpayer's appeal. The Taxpayer then filed an appeal with the Federal Supreme Court.

Considerations

The Federal Supreme Court confirmed that the interpretation and application of Art. 70 para. 4 DFTA by the lower instance was in accordance with federal law. The wording of the provision is clear and requires that the sold participation must amount to at least 10% of the share or capital of another company in order to justify the participation deduction. The isolated sale of 1.25% does not meet this requirement.

According to Art. 28…