Taxation of the difference between the insured sum and the surrender value as a disguised profit distribution

Facts

The public limited company B. A.-G. had taken out a mixed life insurance policy of CHF 100,000 on the life of its director and main shareholder P. B. In the event of death, the beneficiaries were the insured's spouse and legal heirs. After the death of P. B. in 1951, the insurer paid CHF 66,667 to the widow. The difference of CHF 52,000 between this amount and the previously taxed surrender value of CHF 14,000 was considered by the tax authorities as a disguised profit distribution to a person close to the shareholder, and added to the company's taxable profit.

Considerations

The Federal Tribunal upheld the appeal of the tax authorities. Although the company had no direct right to the insured sum, it had a right of revocation of the beneficiary clause until actual payment to the widow. By refraining from exercising this right, the company made a gift to a third party that must be added to its taxable profit, with the exception of the already taxed surrender value.

The company's arguments that it had not intended to carry out a commercial transaction with…