Taxation of payments from a US Limited Liability Company (LLC) as income from self-employed activity

Facts

The appellants, [A.A.] and [B.A.] , are subject to unlimited tax liability in the canton of Thurgau. [A.A.] holds a 50% stake in the US-based [B.] LLC (hereinafter [B.] ). [B.] is headquartered in the USA and was established under the law of the US state of Wyoming. In 2007 and 2008, [B.] transferred USD 682,500.-- and USD 694,845.-- to [A.A.] , respectively. The tax administration of the canton of Thurgau qualified these payments as taxable income from self-employed secondary employment. The appellants claimed that they were tax-free capital gains from options in the American [B.] .

The Administrative Court of the canton of Thurgau upheld the decisions of the tax administration and the tax appeals commission. The appellants requested the Federal Court to overturn the decision of the Administrative Court and waive taxation of the aforementioned payments.

Considerations

The Federal Court examined the question of whether [B.] is to be qualified as a legal entity or a partnership for tax purposes. It concluded that [B.] is to be qualified as a partnership due to its structure and tax treatment in the USA. The appellant's participation in [B.] was qualified as self-employed activity, as the company was commercially active and the appellant had a share of the profits as a partner.

The Federal Court found that the payments to the appellant are to be qualified as taxable assets income from business assets within the meaning of Art. 18 DFTA and are to be valued as taxable income from self-employed secondary employment. The question of whether the company's payments were made on the instructions and account of [C.] or are attributable to the company itself was not relevant for the qualification as asset income from business assets.

The US DFTA does not limit Swiss tax…