Facts
[A. AG] , a listed stock corporation, held a 100% participation in [B. AG] in the 2011 tax year. [B. AG] was an investment company that acquired a 3.53% participation in [D. AG] in 2009 and expanded this participation to 11.75% in 2010. In September 2011, [B. AG] sold its entire participation in [D. AG] to an independent hedge fund at a profit.
[A. AG] , the legal successor of [B. AG] , applied for a 100% participation deduction for the 2011 tax year, as it considered the capital gain from the sale of the participation in [D. AG] to be qualifying participation income. However, the tax administration of the canton of Zug only granted a participation deduction of 37.008%, as the participation in [D. AG] had not been held by [B. AG] for the entire minimum holding period of one year.
The Administrative Court of the canton of Zug dismissed the appeal by the Federal Tax Administration against the ruling that had confirmed the participation deduction of 100%. The Federal Tax Administration then appealed to the Federal Supreme Court.
Considerations
The Federal Supreme Court had to examine whether the minimum participation quota and the minimum holding period under Art. 70 para. 4 lit. b DFTA 2007 must be cumulative. The lower court had denied this and argued that even a partial participation held during the entire year, but not reaching the minimum participation quota, could be considered qualifying participation income.
However, the Federal Supreme Court followed the opinion that the wording of Art. 70 para. 4 lit. b DFTA 2007 is clear and requires a cumulative condition of minimum participation quota and minimum holding period. It stated that the provision is based on a link between fractional and temporal minimum requirements and that only a participation…