Tax exemption of research contributions as a gift with conditions denied; additional taxes for federal direct tax and cantonal and municipal taxes 2009-2010 confirmed

Facts

Parties and proceedings: The Tax Administration of the Canton of Basel-Stadt files an appeal in public law matters against the judgment of the Appellate Court of the Canton of Basel-Stadt (acting as Administrative Court) of 1 February 2019 (VD.2017.277, VD.2017.278). The respondents are the spouses [A.] and [B.] , represented by an attorney. The subject matter concerns cantonal and municipal taxes of the Canton of Basel-Stadt as well as the federal direct tax for the tax periods 2009 and 2010.

Facts: In 2009 and 2010, [B.] received research contributions of CHF 88'800.-- and CHF 95'800.-- from a private non-profit foundation, which were not declared in the tax return. The assessment decisions of 7 April 2011 and 6 October 2011 became final without challenge.

By decisions of 25 August 2015, the Tax Administration imposed additional taxes including late-payment interest of approximately CHF 63'000.--. The objections and the appeal to the Tax Appeals Commission were unsuccessful. On 1 February 2019, the Appellate Court upheld the remedies and qualified the research contributions as tax-exempt gifts with conditions within the meaning of Art. 24 lit. a DFTA.

Requests: The Tax Administration requests the annulment of the judgment of the Appellate Court and the confirmation of the decisions of the Tax Appeals Commission of 22 June 2017. The respondents request dismissal. The Administrative Court agrees with this, while the Federal Tax Administration supports the granting of the appeal for the federal direct tax.

Disputed question: Whether the research contributions were provided without consideration (gift with conditions under Art. 24 lit. a DFTA) or whether they constitute taxable income whose non-taxation was wrongly omitted, such that additional taxes are owed under Art. 151 para. 1 DFTA.

Considerations

Procedure and standard: The appeal in public law matters against the final cantonal decision is admissible (Art. 82 lit. a, Art. 86 para. 1 lit. d FSCA in conjunction with Art. 146 DFTA and Art. 73 DTHA). The Federal Supreme Court reviews federal and international law; the establishment of facts can only be corrected if manifestly incorrect or in violation of law (Art. 95, Art. 105 FSCA).

Gift with conditions (Art. 24 lit. a DFTA): According to case law, a tax-exempt gift exists where there is a gratuitous transfer inter vivos with donative intent (animus donandi). The objective element of gratuitousness is absent where the recipient provides a counter-performance, whereby neither the economic value nor the type of counter-performance is decisive. The Appellate Court had affirmed gratuitousness, since there was no publication obligation and the obligations (scientific report, financial report, full-time research, repayment upon termination) did not constitute counter-performance.

Overall assessment of counter-performance: The Federal Supreme Court denies gratuitousness. The foundation required a concrete, demanding activity: the recipient had to work full-time on the project during the three-year period and was not permitted to engage in gainful employment. This prohibition is essential and not merely a safeguard of independence, but the core of the counter-performance. Likewise, a reorientation of the research had to be announced, justified and approved in the scientific report. In the event of early termination, there was a repayment obligation for the remaining time until the end of the period, which makes the funds appear as a purpose-bound remuneration for research work. In case of irregularities in the financial report, repayment for time already performed also threatened. Overall, the objective element of a gift is lacking; Art. 24 lit. a DFTA was wrongly applied.

Irrelevance of donative intent: As gratuitousness is absent, the subjective donative intent need not be examined. It remains open whether the finding of donative intent would be binding on the Federal Supreme Court. In addition, the Federal Supreme Court notes that a foundation that pays in fulfilment of a statutory legal obligation has no donative intent, and that in view of the mandatory regulatory requirements no donative intent is apparent.

Assessment of objections: The arguments of the…