Facts
Parties and procedural history: The appellants, Mr. [A.A.] and Mrs. [B.A.] , were the sole shareholder and husband of the sole shareholder, respectively, of [C. AG] , a real estate company domiciled in the Canton of St. Gallen. The company was deleted from the commercial register. For the 2013 tax period, the Cantonal Tax Office of St. Gallen initiated a post-taxation procedure after reports of unrecorded turnover by [C. AG] were received. With post-taxation notices dated 21 September 2021, untaxed income from participations of a total of CHF 88,360 (cantonal and municipal taxes) and CHF 53,016 (direct federal tax) were offset against the appellants. The appeals against these notices were dismissed by the Tax Office (decision dated 22 December 2021). The Administrative Appeals Commission of the Canton of St. Gallen set aside this decision and referred the matter back to the Tax Office for reassessment (decision dated 13 February 2023). The Administrative Court of the Canton of St. Gallen, however, upheld the post-taxation notices (decision dated 17 August 2023). The appellants filed an appeal in public law matters with the Federal Supreme Court.
Detailed facts: In 2013, [C. AG] issued two invoices totalling CHF 88,360 to a third-party company. The third-party company recorded these amounts as expenses and transferred them to an account indicated on the invoices as the payment reference. The Cantonal Tax Office of St. Gallen assumed that these payments constituted hidden profit distributions to the appellant, as the company had no business activity during the relevant period and did not file a tax return. The appellants disputed this, arguing that there was no evidence of an actual flow of funds to them. They claimed that the company itself could have received the payments. Moreover, they had no means of clarifying the facts, as they no longer had access to the company’s records.
Considerations
Admissibility of the appeal: The Federal Supreme Court first examined the admissibility of the appeal in public law matters. It found that the appellants were entitled to file the appeal and that the appeal had been filed in the correct form and within the statutory time limit. The Federal Supreme Court applied federal law ex officio and examined the grounds raised within the scope of its free cognition, taking particular account of the harmonised tax law of the cantons and municipalities.
Burden of proof and cooperation obligations in post-taxation proceedings: The Federal Supreme Court recalled that, in assessment proceedings for taxable persons, the principle of investigation applies. The tax authorities bear the burden of proof for tax-creating and tax-increasing facts, while tax-excluding and tax-reducing facts must be proven by the taxpayer. These principles apply mutatis mutandis in post-taxation proceedings. If a legally relevant fact cannot be established directly, the authority may rely on indicia from which the relevant facts can be inferred with sufficient certainty. The taxpayer has the opportunity to rebut the presumption and dispel the natural inference.
Monetary benefits from participations and two-dimensional facts: The Federal Supreme Court stated that monetary benefits from participations (e.g. hidden profit distributions) are offset against the shareholder. In a two-dimensional fact pattern – where both the company and the shareholder are tax-relevant – there is no automatic offsetting relationship. Rather, an independent legal assessment at the level of the shareholder is required. A shareholder who is simultaneously an organ and/or a controlling shareholder must refute in detail the existence and…