Facts

Parties and procedural history:

The [A. AG] , whose sole board member is [B.] , was assessed for the tax periods 2008 to 2013 by the cantonal tax authorities of the Canton of St. Gallen with no taxable profit and no taxable capital. In 2018, the Cantonal Tax Office of St. Gallen opened an investigation against the company on suspicion of tax evasion. The accusation was that the company had recorded business expenses totalling CHF 143,275.- in the years 2008 to 2013 that were not commercially justified. Specifically, two accusations were made:

  • Conclusion of leasing agreements for fictitious capital goods,
  • Passing on of business expenses that were not commercially justified by the [C. AG] to the [A. AG] .

The accusations were based on a report by the Criminal and Investigative Division (ASU) of the Federal Tax Administration (FTA) dated 21 August 2017 against [B.] . With a penal order dated 25 February 2019, the Cantonal Tax Office convicted the [A. AG] of completed tax evasion and imposed a fine of CHF 17,000.-. The company appealed against this penal order on 27 March 2019. The matter was referred to the Administrative Appeals Commission of the Canton of St. Gallen (VRK), which convicted the company with a decision dated 15 February 2022 of multiple intentional tax evasion (profit and capital taxes 2009 to 2013) and imposed a fine of CHF 12,000.-. The [A. AG] unsuccessfully appealed against this decision to the Administrative Court of the Canton of St. Gallen (judgment dated 5 September 2022).

On 11 October 2022, the [A. AG] filed an appeal with the Federal Supreme Court in public law matters. It requested the annulment of the administrative court judgment and the discontinuation of the tax criminal proceedings. In the alternative, it requested an acquittal from the accusation of completed tax evasion. Subsidiarily, it requested the annulment of the judgment and the referral of the matter back to the VRK for a repetition of the main hearing.

Factual findings of the lower courts:

The lower courts based their findings on the ASU report, according to which the [A. AG] had recorded various fictitious expenses in the years 2009 to 2013. These included:

  • Tax evasion by the [C. AG] , which passed on business expenses for leasing that were not commercially justified to the [A. AG] (CHF 15,632.70, CHF 16,397.50, CHF 19,158.60 in 2009; CHF 6,383.15, CHF 16,073.10, CHF 16,458.50 in 2010),
  • Fictitious financing transactions by the [A. AG] itself, in particular the capitalisation of a non-existent ventilation central unit (depreciation in the years 2008 to 2014) as well as a fictitious leasing transaction (USM office furniture) with business expenses for leasing that were not commercially justified in the years 2007 to 2010 (tax shortfall for 2009: CHF 26,250.- and CHF 35,219.90; for 2010: CHF 19,687.- and CHF 32,284.-; for 2011: CHF 14,765.-; for 2012: CHF 11,074.-; for 2013: CHF 8,306.-).

The VRK and the Administrative Court confirmed the criminality of intentional tax evasion and the appropriateness of the fine of CHF 12,000.- (for the tax periods 2009 to 2013; the fine for 2008 had lapsed due to limitation).

Considerations

The Federal Supreme Court examined the appeal of the [A. AG] for admissibility and merits. It found that the appeal in public law matters met the requirements of Art. 82 lit. a, Art. 83 e contrario, Art. 86 para. 1 lit. d and para. 2 and Art. 89 para. 1 and Art. 100 para. 1 FSCA. The appellant’s requests were admissible as they had been submitted in a sufficiently precise and reasoned manner.

The Federal Supreme Court based its judgment on the facts established by the lower court (Art. 105 para. 1 FSCA). It deviates from the factual basis of the lower court judgment only if these are obviously incorrect, incomplete or were established in violation of essential procedural rights and the remedy of the defect could be decisive for the outcome of the proceedings (Art. 97 para. 1, Art. 105 para. 2 FSCA). The appellant had raised numerous procedural objections, which the Administrative Court had all dismissed as unfounded. The Federal Supreme Court examined these objections and concluded that they were neither individually nor collectively capable of rendering the findings of the lower court obviously incorrect or arbitrary.

Procedural objections of the appellant:

The appellant argued that the cantonal tax authorities had used evidence in the tax evasion proceedings that was based on investigations by the ASU. However, the ASU had committed numerous procedural violations, in particular through non-party-public correspondence with the opposing party and the refusal of party rights. Moreover, it had never been a party to proceedings under Art. 190 et seq. DFTA and had had no participation, information or co-operation rights in the ASU proceedings. According to the appellant, these violations led to an absolute prohibition on the use of the ASU findings in the tax evasion proceedings.

The Federal Supreme Court dismissed these objections. It found that the ASU had acted within the scope of its statutory duties (Art. 190 et seq. DFTA). The ASU had conducted its investigation in accordance with the rules of administrative criminal law, which were to be interpreted in the light of Art. 6 ECHR. The appellant had not shown in what way the ASU had had a personal interest in the outcome of the proceedings. Moreover, the communication of the ASU with the opposing party was legally regulated (Art. 111 para. 1 in conjunction with Art. 195 para. 1 DFTA) and therefore permissible. The appellant had also not demonstrated that there had been further decisive, undisclosed correspondence between the ASU and the opposing party. Its allegations had remained unsubstantiated.

The appellant further argued that its right to be heard had been denied in the ASU proceedings and that these violations of the right to be heard could not be cured in the tax evasion proceedings. The Federal Supreme Court stated that the ASU had initiated proceedings against [B.] , but not against the appellant. Therefore, the latter had not had the party rights under Art. 193 para. 2 DFTA. What was decisive was that [B.] had been questioned about the disputed business transactions in the ASU proceedings and had been able to participate in the taking of evidence. Moreover, in the tax evasion proceedings before the cantonal authorities, the appellant had had the opportunity to comment on the evidence and submit applications. It had been able to exercise its right…