Appreciable benefits in money from a limited liability company and tax evasion: burden of proof and fine

Facts

Parties and proceedings: The appellant, a Vaud taxpayer ([A.] ), represented by a fiduciary company, appeals the judgment of the Cantonal Court of the canton of Vaud, Administrative and Public Law Division, of 4 November 2020 (FI.2019.0127). The respondent is the Cantonal Tax Administration of the canton of Vaud. The Federal Tax Administration joins the response of the Cantonal Administration.

Background: In 2005 the appellant founded [C.] Sàrl with his uncles, active in general contracting and formwork; it was declared bankrupt on 30 November 2009. In August 2006 he founded [G.] Sàrl with his wife, active in formwork, of which he held 19,000 CHF of a 20,000 CHF capital, and then the entire capital from April 2009; he had individual signing authority. The spouses were taxed jointly for 2006 to 2008, then separately from 2009, and divorced in 2012.

Back-tax procedure and tax evasion: In 2012 the Cantonal Administration opened proceedings against [G.] Sàrl (periods 2007 to 2011) and then against the appellant and his former wife (2006 to 2008). It discovered that the company had received, into an undeclared bank account, 1,103,219 CHF not recorded in the accounts, the outgoing payments being made in cash and involving sums rounded to the thousand. It agreed to take into account subcontracting costs and set an adjustment of 141,684 CHF (net margin of 11%), which the company accepted. It also adjusted expenses not justified by commercial practice for 2006 to 2010 (1,236 CHF, 22,084 CHF, 80,125 CHF, 54,255 CHF, 18,449 CHF).

Decisions: On 11 December 2017 the Cantonal Administration issued three decisions: back taxes for 2006 and 2008, fines for tax evasion for 2006 to 2008, and back taxes and fines for 2009 to 2013. It identified three appreciable benefits in money received by the appellant: the undeclared turnover (141,684 CHF), the expenses not justified by commercial practice, and the use of a private vehicle recorded at 60,000 CHF in 2007. Following an objection, the decision of 4 June 2019, taken after giving the taxpayer notice and in reformatio in pejus, raised the turnover adjustment to 1,103,219 CHF. It resulted in an additional tax of 622,272 CHF and fines of 417,900 CHF.

Cantonal judgment: The Cantonal Court partially upheld the appeal of 4 July 2019, reduced the turnover adjustment to 141,684 CHF (spread over 2007 to 2009), confirmed the adjustment of 106,876 CHF 94 for expenses not justified in 2008 and 2009, confirmed the benefit relating to the vehicle, which was not contested, annulled the decision on objection as regards taxable income and wealth for 2007 to 2009, and remitted the case to the Cantonal Administration for recalculation.

Claims before the Federal Supreme Court: The appellant requests, by way of public law appeal, the annulment of the judgment insofar as it accepts appreciable benefits in money linked to the unrecorded turnover and the unjustified expenses, the dismissal of the back-tax assessments and fines for 2006 to 2009 (DFTA and CC), and, in the alternative, remittal to the Cantonal Administration. The Cantonal Court waives submitting observations; the Cantonal Administration requests dismissal.

Considerations

Admissibility: The appeal is directed against a final decision of last cantonal instance in tax matters (art. 82 let. a, 86 para. 1 let. d and para. 2 FSCA; art. 146 DFTA; art. 73 DTHA). Although it is a remittal judgment, it leaves the Cantonal Administration no margin of discretion, as it need only recalculate the taxes and fines; the judgment is therefore a final decision (art. 90 FSCA; ATF 138 I 143). The single appeal concerning DFTA and CC is admissible (ATF 135 II 260). The requests seeking the « dismissal » of the back-tax decisions are inadmissible due to the devolutive effect of the cantonal appeal (ATF 136 II 101). Otherwise the appeal is admissible.

Scope of review: The Federal Supreme Court applies the law of its own motion (art. 106 para. 1 FSCA), but examines the violation of fundamental rights and cantonal law only if the complaint has been raised and substantiated (art. 106 para. 2 FSCA). It is bound by the facts established, unless they are arbitrary or the law has been violated within the meaning of art. 95 FSCA (art. 105 para. 1 and 97 para. 1 FSCA); arguments of mere appeal are inadmissible. In matters of harmonised tax law, review is unrestricted, subject to any margin of discretion left to the cantons by the DTHA (ATF 144 II 313).

Appreciable benefits in money (DFTA, art. 20 para. 1 let. c DFTA): There is an appreciable benefit in money where the company provides a performance without a corresponding counter-performance, to the benefit of a shareholder or a person close to them, which would not have been granted to a third party, and the organs knew or could have realised the benefit (ATF 140 II 88; ATF 138 II 57). The triangle theory applies where the performance passes through the shareholder to a close person (ATF 138 II 57). As regards the burden of proof (art. 8 CC), the authority must establish the facts justifying the taxation; however, where the company makes payments that are neither recorded nor justified, an appreciable benefit may be presumed on the part of the shareholder, who must then prove in a detailed manner that the adjustment is not justified; there is, however, no automatism of taxation.

Adjustment relating to undeclared turnover (141,684 CHF): The appellant argues that the cash withdrawals served to pay the staff of a sister company at cost, in accordance with ATF 138 II 57 and judgment 2C_88/2011. The Federal Supreme Court holds that this argument relies on facts not established by the contested judgment, which cannot be taken into account (art. 105 para. 1 FSCA). The complaint of automatic taxation is rejected: the Cantonal Court assessed the evidence, in particular the invoices of [C.] Sàrl rounded to the thousand, the adjusted hourly statements, the absence of daily statements, the unnecessary certificates and an invoice drawn up after liquidation, and concluded that they had been prepared for the purposes of the case. The appellant, holding almost the entire and then the entire capital and individual signing…