Facts
The [X. AG] , a hotel operator founded in 1998, was supported by its main shareholder, the [L. AG] , with loans of around 25 million francs after the hotel had to be closed due to static construction defects. The loans were booked as debt capital, and the company incurred a balance sheet loss of 45 million francs. The tax administration of the canton of VS qualified the loans as hidden equity and set the taxable capital at 42.2 million francs. The [X. AG] lodged a complaint, arguing that the qualification of the loans as hidden equity constituted a violation of the principle of taxation according to economic performance.
The Tax Appeals Commission of the canton of VS dismissed the complaint, and the [X. AG] lodged a complaint with the FSCA. The FSCA had to decide whether the qualification of the loans as hidden equity and the refusal to offset the loss with the hidden equity were lawful.
Considerations
The FSCA examined the lawfulness of the qualification of the loans as hidden equity and the refusal to offset the loss. It found that the tax laws of the canton of VS provide for a minimum taxation that allows the taxable capital to be fixed at the paid-in capital or share capital, even if the company does not make a profit or incurs a balance sheet loss.
However, the court found that the lower court had not sufficiently justified the qualification of the loans as hidden equity and the refusal to offset the loss. It found that the qualification as hidden…