The requirements for a discretionary assessment were not met due to the lack of a threat of such an assessment. In the objection procedure, the obligor was able to demonstrate that the discretionary assessment was obviously incorrect. The asset development was comprehensible due to the specific circumstances and not due to the inflow of undeclared taxable income (Administrative Appeals Commission, Division I/1, 20. October 2011, I/1-2010/171).
President Thomas Vögeli, members Fritz Buchschacher and Markus Frei; court clerk Susanne Schmid Etter
Cantonal Tax Office, Davidstrasse 41, 9001 St. Gallen, Switzerland. Gallen, lower instance,
Federal Tax Administration, Direct Federal Tax Division, Legal Department, Eigerstrasse 65, 3003 Bern, party to the appeal,
Direct federal tax (income 2009)
A.- X is single and lives with her parents in A. In 2009, she was self-employed as a cosmetician. In addition, she pursued a dependent gainful activity. In the 2009 tax return, she declared for the state-. Municipal taxes a taxable income of Fr. 5'807.– and had taxable assets of Fr. 35'805.– The cantonal tax office made additional inquiries about the means of subsistence. Assessed X for the 2009 direct federal tax with a taxable income of Fr. The cantonal tax office made additional inquiries about the means of subsistence. Assessed X for the 2009 direct federal tax with a taxable income of Fr. 23'100.–, whereby she was granted discretionary income of Fr. 15'000.– offset. Insurance premiums of Fr.– offset and insurance premiums of Fr. 1'097.– were not recognized as a business-related expense.
B.- By letter of 26. April 2010, X filed an appeal against the assessment. It requested the waiver of the offsets totaling Fr. 16'097.–. By decision of 6. The cantonal tax office dismissed the objection on August 1, 2010.
C.- Against the objection decision, X filed a petition dated 24. In August 2010, you filed an appeal with the Administrative Appeals Commission with the corresponding request to waive the set-off of income of Fr. 15'000.– The appeal is to be waived and the premiums for accident and daily sickness benefits insurance are to be allowed as a deduction. By letter of 25. On October 10, 2010, the lower court requested that the complaint be dismissed with costs. At the same time, with reference to the appeal decision, she waived the right to a hearing. The complainant did not allow herself to be heard.
In response to the submissions made by the parties in support of their claims and the
Files will be dealt with, as far as necessary, in the context of the following recitals.
1.- The entry requirements are to be checked ex officio. The Administrative Appeals Commission is competent to decide on the merits of the case. The authority to file an appeal is given. The complaint of 24. August 2010 has been submitted on time. It fulfills the legal requirements in terms of form and content (Art. 140 Abs. 2 of the Federal Act on Direct Federal Tax, SR 642.11, abbreviated: DBG; Art. 7 of the Ordinance to the Federal Act on Direct Federal Tax, sGS 815.1; Art. 41 lit. H Ref. 1 of the law on the administration of administrative justice, sGS 951.1, abbreviated: VRP). The appeal must be upheld.
2.- First of all, it must be examined whether the lower court was correct in assessing the complainant on a discretionary basis.
A) According to Art. 130 para. 2 sentence 1 DBG, the assessment authority makes the assessment at its discretion if the taxpayer has not fulfilled its procedural obligations despite a reminder or if tax factors cannot be determined properly due to a lack of reliable documentation. This provision distinguishes between two cases. On the one hand, the violation of procedural obligations entitles to a discretionary assessment, on the other hand, such an assessment has to be made if no reliable documents are available.
The breach of procedural duty may consist in the fact that a taxpayer does not submit the tax return, does not comply with a request for information by the assessment authority or does not submit the requested documents (Richner/Frei/Kaufmann/Meuter, Handkommentar zum DBG, 2. Onl. 2009, N 32 to Art. 130 DBG). In the case of the absence of reliable documents, it is decisive that the facts cannot be clarified and are therefore uncertain. Consequently, the taxpayer may not be assessed on a discretionary basis without prior investigation by the tax authorities. Even in the case of a discretionary assessment, all clarifications must be made that are apparent from the files and can be carried out without great effort. Only if the uncertainty in the facts cannot be resolved despite these investigations, a discretionary assessment is to be made (Zweifel/Athanas, Kommentar zum Schweizerischen Steuerrecht, vol. I/2b, 2. Aufl. 2008, N 43 to Art. 130 DBG). A threat of assessment under Art. 130 para. 2 DBG as well as a reference to the legal disadvantages of the same pursuant to Art. 132 para. 3 DBG (proof of obvious incorrectness in the objection procedure, "reversal of the burden of proof") must be included both in the first request and in the reminder (cf. Richner/Frei/Kaufmann/Meuter, a.A.O., N 48 on Art. 130 DBG; VRKE I/1-2009/70 of 30. March 2010, E. 2.B.Cc).
B) The complainant filed the 2009 tax return in due time and with the necessary enclosures. In it, she declared income from employment of Fr. 6'173.–, such from self-employment of Fr. 13'433.–, Income from securities of Fr. 262.– as well as a net worth of Fr. 110'805.–. Due to the fact that the net assets increased by approximately Fr. 12'000.– had increased, the tax commissioner requested the complainant by letter dated 19. In March 2010, the complainant was requested to submit a written statement on the financing of her living expenses and to complete the form on living expenses (act. 9/II.15). Furthermore, he asked her to submit further documents (accounting account sheets, car purchase contract, health and accident insurance policies, receipts for further education and retraining costs, receipts for voluntary benefits). The complainant fully complied with this request. She submitted the requested supporting documents. Filled out the form on living expenses. In its opinion of 25. In her letter of March 2010, she stated that she had had to give up one of her part-time jobs in 2008 due to health problems. However, she could live with her parents free of charge. To also predominantly board with them free of charge. From the parents she had received Fr. 10'000.– for the purchase of a new vehicle, since her mother shared the car (act. 9/II.14). The lower court subsequently applied a discretionary set-off of Fr. 15'000.– from which a taxable income of Fr. 23'100.– resulted in. It is true that the assessment authority conducted a prior investigation. However, it has omitted to duly threaten the discretionary assessment and to point out its consequences. In the call of 19. March 2010, a corresponding note was missing. The legal provisions mentioned therein of Art. 169 – 176 StG respectively. Art. 125 – 129 DBG only referred to the general procedural obligations and regulations. Thus, the legal hearing of the complainant was violated.
C) The formal requirements for a discretionary assessment of taxable income for the 2009 direct federal tax were thus not met.
3.- A discretionary assessment can only be challenged by the taxpayer on the grounds of obvious incorrectness. The objection must be substantiated. Must state any evidence (Art. 132 para. 3 DBG). If a discretionary assessment was rightly made, the objector must prove the incorrectness of the assessment; the burden of proof is reversed to the detriment of the taxpayer.
A) The taxpayer can prove the obvious incorrectness of the discretionary assessment in two ways. On the one hand, he may plead and prove the real facts of the case. This means that the requirements for a discretionary assessment no longer apply, because the tax factors can be determined perfectly within the framework of an ordinary assessment. As a second type of proof of incorrectness, it is also open to the taxpayer to prove that the estimate itself is obviously incorrect. The assessment authority is obliged to review the amount of the estimate (Zweifel/Athanas, a.A.O., N 39 and 51 to Art. 132 DBG).
An estimate is obviously incorrect if it is arbitrary (cf. Decision of the Administrative Court of the Canton of Zurich of 21. May 2003, in: StE 2004 B 92.3 No. 13, E 4c). Obviously incorrect are those estimates that are not factually justifiable, in particular are recognizably penal or fiscally motivated, are based on improper estimation bases, methods or aids or otherwise cannot reasonably be reconciled with the circumstances of the individual case on the basis of life experience (cf. Richner/Frei/Kaufmann/Meuter, a.A.O., N 68 to Art. 132 DBG; Zweifel/Athanas, a.A.O., N 52 to Art. 132 DBG). In this case, the documents submitted during the appeal procedure must also be taken into account.
The assessment authority makes the discretionary assessment according to its best judgment. In doing so, it may take into account empirical figures, asset development and the taxpayer's living expenses (Art. 130 para. 2 DBG). The aim of the discretionary assessment is the best possible approximation to the true facts of the case. In the discretionary assessment, the authority must take into account all documents available to it. The taxpayer should be assessed according to his economic capacity as far as possible. As a rule, the estimate may only refer to the amount of the tax factors. In general, however, the basic facts may not be estimated, d.H. The tax-triggering facts (the tax object) itself. Only when it is certain that income exists, of which only the amount is unknown, may an estimate be made. However, an exception is to be made if not only a specific factual feature, but the tax object itself is uncertain. In this case, the entire income or. The entire profit or also parts thereof are estimated (Richner/Frei/Kaufmann/ Meuter, a.A.O., N 67 ff. To type. 130 DBG; cf. Also GVP 1973 No. 5, 1987 no. 22). The assessment authority is required to compare the income declared by the liable person with his living expenses. Such a comparison allows conclusions on the correctness of the declaration. A contradiction not declared by the taxpayer between the declared income and the private consumption allows the estimation of the income according to the expenses (cf. RB/ZH 1982 no. 71; KRKE SO 1983 no. 8). In the case of an assessment according to living expenses, the latter shall be determined according to the professional and social status of the taxpayer. If it is not possible to base the assessment on documents, the expenses are to be estimated, whereby the taxpayer's cost of living is to be determined in the first instance by means of a compulsory procedure. In this context, it is not necessary to examine from which sources the income required for the personal expenditure originates. However, the taxpayer retains the right to prove that the expense was met from tax-exempt income or from consumption of property (Richner/Frei/Kaufmann/Meuter, a.A.O., N 71 to Art. 130 DBG m.W.H.).
B) The complainant claims that she received cash from her parents amounting to Fr. 10'000.– for the purchase of the new business car received as a gift. In return, they would be allowed to use the car as well. Unfortunately, the parents had failed to declare this accordingly in their 2009 tax return. As far as her livelihood was concerned, she was generously supported by her parents. She could live and eat with them free of charge. She repeatedly receives supportive gifts from friends, such as vouchers, clothes or gifts in kind.
The lower court counters that despite a declared net income of Fr. 5'807.– the complainant had been able to increase her net assets in 2009 by Fr. 12'070.– to increase. From this alone it can be deduced that she could not possibly have covered her living expenses with the declared income. The parents of the complainant had neither as of 31. December 2008 still as of 31. December 2009 cash declared, which contradicts the claim of co-financing of the car purchase in the amount of Fr. 10'000.– stand.
C) The lower court calculated estimated costs of the complainant for her living expenses in 2009 of Fr. 23'858.–. Taking into account the increase in assets of Fr. 11'344.– this resulted in necessary income of Fr. 35'202.– and thus a difference to the declared income (Fr. 19'868.–) of Fr. 15'344.–. Already during the appeal proceedings, the complainant's parents confirmed in their signatures that the daughter had been able to live with them free of charge and had also been able to eat mainly free of charge. In her detailed statement of expenses, the complainant reported private expenses for food, cosmetics, hairdressing, clothes, books, hobbies and health articles of just under Fr. 3'000.– from (act. 2/4). Without further details, the lower instance set for this purpose Fr. 7'000.– a. In the absence of substantiated indications that speak against the plausible representation of the complainant, her statements are to be taken into account, which already results in a difference in her favor of Fr. 4'000.– results. On 20. In July 2009, the complainant purchased a VW Polo (second-hand model) as a new business car for Fr. 18'300.–. For the previous business car, she received Fr. 2'000.–, which results in an amount still to be paid of Fr. 16'300.– resulted in. On 21. In July 2009, the complainant paid Fr. 16'300.– to the account of the seller. Fr. 6'000.– of which she withdrew from her bank account on the same day (act. 9/I-1.3). Fr. 10'000.– she allegedly received in cash from her parents. The complainant's parents confirmed these facts several times in writing. This money had been withdrawn from household money reserves over the course of time. Cash funds accumulated from the son's boarding allowance (act. 2/6). Since the mother can share the use of the car in return, the concordant representation of the complainant and her parents appears to be correct, taking into account the bank withdrawal of the remaining Fr. 6'000.– Comprehensible, coherent and therefore credible. The fact that the parents did not state any expenses in their tax return as of 31 December 2009 does not change this. December 2008 apparently have not declared any cash, nothing to change. Since the purchase was made on 21. Since the withdrawal took place on July 1, 2009, this money could have been saved in the first half of 2009 without further ado from various withdrawals from the account or from the cost money of the son. The complainant can only be reproached for not having declared the gift from her parents in the securities register. This omission is, however, in view of the tax exemption of gifts to descendants in cantonal law (cf. Type. 146 Abs. 1 StG) should not be weighted too heavily. She is unable to overturn the proof of gift provided by the complainant. It must therefore be assumed that the complainant received from her parents in 2009 Fr. 10'000.– for the purchase of the new company car, which means that the difference between the necessary and declared income of Fr. 15'000.– taking into account the income increased by Fr. 4'000.– reduced life expenses. The gift of Fr. Living expenses. The gift of Fr. 10'000.– only Fr. 1'000.– amounts to. Under these circumstances, there is no room for a discretionary set-off. The complainant has succeeded in presenting the true facts of the case. The discretionary assessment thus proves to be obviously incorrect. On this point, the appeal is to be upheld and the set-off of Fr. 15'000.– is to be dropped.
4.- It is also disputed whether the premiums for the complainant's business health, accident and loss of earnings insurances constitute expenses justified by the business.
A) The complainant argues that the loss-of-earnings insurance in her case clearly serves business purposes. The insurance would not have a precautionary character. If she is unable to work due to accident or illness, she has no income without insurance. The waiting period of 30 days was chosen in order to keep the premium burden as low as possible.
B) In case of self-employment, the business or professionally justified costs are deducted (Art. 27 para. 1 DBG). This means that the expense must be related to the taxpayer's gainful activity and that there must therefore be an economic connection between the expense and the income from self-employment (Weidmann/Grossmann/Zigerlig, Wegweiser durch das st. Gallic Tax Law, 6. Aufl. 1999, S. 70). Doctrine and jurisprudence assume that insurance premiums are deductible as profit costs if they are paid for occupational personal and property insurance. Premiums for health and accident insurance or risk and life insurance for self-employed persons are generally not covered, as they are generally not directly related to the generation of earned income. This rule is subject to exceptions insofar as the conclusion of an insurance policy for the self-employed person is predominantly business-related. From this point of view, insurance premiums for personal insurance are recognized as business-related expenses if and to the extent that they serve to secure a business loan taken out at the start of the self-employed activity and thus assume the function of credit insurance. In addition, case law affirms the character of profit costs of accident insurance premiums if the exercise of the profession is linked to special accident risks and the self-employed person takes out accident insurance in order to avert the economic consequences of the occurrence of the risk for himself. In the case of accident insurance, the statutory provisions on the compulsory accident insurance of self-employed persons (cf. SR 832.30) applied mutatis mutandis. The premiums analogous to the deduction admitted (SGE 1993 No.30) is applied mutatis mutandis and the premiums are allowed for deduction by analogy (SGE 1993 No. 5). Insurance premiums may also be recognized as a business expense to the extent that the insurance, by assuring a per diem allowance, helps to keep the business going in the event the business owner is unable to work due to an outage. An insurance against loss of income can therefore serve business purposes if it helps to cover the running costs for a certain period of time if the owner of the business is prevented from working. In order to fulfill this function, the insurance benefit must start quickly in the event of a loss of income and be limited to a certain duration (maximum two years) (GVP 2004 no. 28 with numerous references).
C) In its annual financial statements for 2009, the complainant recorded in the expense account no. 4020 Fr. 1'126.40 for loss-of-earnings insurance, Fr. 793.– for a daily sickness benefit insurance and Fr. 274.– for accident insurance. Half of these expenses (Fr. 1'096.70) it delimited as a private expense. The lower court considered all accident and health insurance expenses to be private and calculated Fr. 1'097.– to. The premium for the accident insurance of Fr. 274.– however represents business justified expenses (cf. SGE 1993 Nr. 5). The offsetting of the premium expense recognized in the income statement of Fr. 137.– therefore proves to be unfounded. The daily sickness benefit insurance with an insured salary of Fr. 41'000.–. A premium of Fr.– and a premium of Fr. 793.– has for the complainant, on the other hand, mainly wage continuation character. Her cosmetic services, which she offers in the house of her parents or at the customers' place, do not cause high fixed costs, which would have to be covered in a time without earned income. There are also no employees. This insurance is not for business purposes, but is of a private pension nature. The premium of Fr. 793.– therefore does not constitute a business-related expense. With regard to the loss of earnings insurance with a recorded premium of Fr. 1'126.40, the complainant has not provided any further details nor submitted any documents. It is probable that this concerns a life insurance policy (cf. The complainant's information on her living expenses, act. 9/II.14). In the absence of proof of business necessity, this premium was also rightly offset by the lower court.
D) The complainant's assessed income from self-employment is thus reduced from Fr. 28'433.– for Fr. 15'137.– to Fr. 13'296.–. The total income amounts to Fr. 19'731.–. The deductible medical expenses amount to Fr. 594.–, which brings the taxable income to Fr. 7'400.– reduced.
5.- The appeal must therefore be partially upheld, and the contested objection decision of 6. August 2010 is to be annulled. For the 2009 direct federal tax, the complainant has a taxable income of Fr. 7'400.– to be assessed.
6.- The costs of the proceedings before the Cantonal Tax Appeals Commission shall be imposed on the losing party; if the appeal is partially upheld, they shall be imposed proportionately (Art. 144 Abs. 1 DBG). After the complainant has almost completely prevailed, it is justified to charge the costs of the proceedings in full to the state. A decision fee of Fr. 600.– (Art. 144 para. 5 DBG in connection with Art. 7 num. 122 of the Ordinance on Court Costs, sGS 941.12). The financial administration is to be ordered to pay the complainant the advance on costs of Fr.