PwC

Tax & Legal

Premises of a Swiss cab center may be permanent establishment


Premises of a Swiss taxi headquarter belonging, among others, to the plaintiff may constitute a permanent establishment and the ensuing revenues from the taxi services thus be exempt from income tax in Germany.

Background

The plaintiff had his family residence in Germany and thus was generally subject to German income tax. He earned income from his taxi operations through a company registered in the commercial register of a Swiss canton described therein as “operation of taxi services”. He has a driver’s license issued in Switzerland, a Swiss cab license and three cab owner permits which were issued by the cantonal police. In the years in dispute, the plaintiff employed five cab drivers in 2009 and four in 2010. The plaintiff is a member of the cab cooperative, an association of independent cab owners. He is registered with his cab business at the registered office of the cab cooperative. As a member of the cooperative, he is obliged to “make as much use as possible of the cooperative’s facilities (described as “duty of loyalty)”.

The tax office took the income from his taxi business to German income tax. It believes the plaintiff did not have a permanent establishment (PE) in Switzerland, but rather runs the cab business from his private residence in Germany. The plaintiff disagrees: He does his office work at the cab center in Switzerland. He was also able to use a workspace there and had a stand-alone container at his disposal. As a result of the appeal the tax office accepted a permanent establishment by way of permanent representative in Switzerland and allocated the profits between the Swiss PE and the German PE by way of best estimate.

Decision

The regional tax court of Baden-Württemberg upheld the action. The plaintiff’s income from his business operations is tax-exempt and only to be taken into account when calculating the tax rate (application of the progressive rate scale).

  • The plaintiff maintains “a fixed business establishment” (and thus a PE) at the premises of the cab headquarters. He had the right to use the office with separate post office box for his business activities, to which he was encouraged under the so-called “duty of loyalty”.
  • The possibility of joint use of the workplace provides a sufficient permanent power of disposal. This is sufficiently demonstrated by the stand-alone container exclusively left for use by the plaintiff, and which is also labeled with the plaintiff’s company nameplate.
  • The plaintiff used the office desk regularly once or twice a week for more than six months. He handles telephone calls, other correspondence, the payment of invoices and preliminary work for the bookkeeping and tax returns prepared by a Swiss tax consulting firm.

In conclusion, the court noticed that these activities are of a regular nature which are necessarily associated with the operation of a company and which are not merely of a preparatory or auxiliary nature.

Source:

Regional tax court of Baden-Württemberg, decision of 14 October 2021 (case ref. 3 K 589/19); press release no. 7/2021 from 7 December 2021. – Appeal to the Supreme Tax Court was permitted but not yet taken (at the time of this post).