Reimbursement of Loans between Sister Companies

Facts

A.X. and B.X. are the sole shareholders of Y. AG and Z. AG. In 2002, Y. AG granted several loans to Z. AG totaling CHF 560,000. The Cantonal Tax Office Zurich and the Administrative Court of the Canton of Zurich qualified these loans as simulated and added them as hidden profit distributions to the taxable income of the appellants. A.X. and B.X. subsequently filed an appeal with the Federal Supreme Court.

Considerations

The Federal Supreme Court overturns the judgments of the lower instances and remands the case for a new assessment to the Tax Office. The findings of fact by the lower instances prove to be manifestly incorrect. Although the credit terms were not market-compliant, as the loans were granted interest-free and without collateral, this alone does not justify the assumption of a simulation. The decisive factor is whether there was no serious prospect of repayment of the loans from the outset. The indications cited by the Administrative Court for this are not convincing. In…