Facts
The Federal Tax Administration, Main Division Direct Federal Tax, Withholding Tax, Stamp Duties, lodged a complaint against the decision of the Administrative Court of the Canton of Schwyz, which had rejected the revaluation of a participation in [R.] Trading AG by [R.] Investment Group (formerly [R.] Holding AG) for tax purposes. [R.] Holding AG had acquired the participation in [R.] Trading AG on 21 November 1994 for CHF 250,000 and valued the participation at CHF 2,000,000 on 18 July 1995. The company then increased the asset book value of the participation as of 31 August 1995 by CHF 1,750,000 and booked this in a passive account "revaluation reserve".
The Administrative Court of the Canton of Schwyz had rejected the revaluation, as it would violate mandatory commercial law valuation rules. The Federal Tax Administration requested that the decision of the Administrative Court be set aside and the appeal decision of 16 October 2000 be confirmed.
Considerations
The Federal Court examined whether the revaluation of the participation violates mandatory commercial law valuation rules. It found that commercial law accounting and valuation principles establish maximum values and business economics seeks the "correct" values, while tax law aims at capturing period-correct profit and setting valuation minimums.
The Federal Court concluded that the company's balance sheet correction does not violate mandatory commercial law valuation rules. The disclosure of a hidden capital contribution results in a broadening of the equity base and thus an increase in assets, which does…