Federal Supreme Court clarifies tax domicile rules for legal entities

In its ruling of 8 April 2025 (9C_547/2023), the Swiss Federal Supreme Court addressed for the first time the question of how to determine the main tax domicile of a legal entity when its place of effective management cannot be geographically established.

The Zurich Cantonal Tax Office initially concluded that when a company’s place of effective management cannot be clearly identified, it should be assumed to be at the residence of the sole director. The Federal Supreme Court, however, clarified that in the absence of sufficient evidence to establish a distinct geographical centre of management, the legal entity’s registered office must be regarded as its main tax domicile. 

Background

A. AG was founded in 2005 in the Canton of Zurich and moved its registered office in 2014 to the Canton of Zug, where it rented office space at a consulting company. Management was undisputedly carried out by the majority shareholder and sole director, Mr B., who resided in Zurich until at least 2020. The company also operated a branch in Germany. Due to Mr B.’s extensive travel activities, no single location could be identified as the focal point of management. 

The Zurich Cantonal Tax Office therefore concluded that Mr B.’s residence should be deemed as the place of effective management of A. AG, since the company’s management essentially revolved around his activities. This view was confirmed by both the Cantonal Tax Appeals Commission and the Administrative Court of Zurich.

The Federal Supreme Court rejected this reasoning, stating that the director’s residence cannot serve as a subsidiary tax domicile of a company unless, considering all circumstances, it can be demonstrated that key corporate decisions are predominantly made there. As a result, A. AG’s unlimited tax liability remains in the canton of its registered office.

Who is affected – and why does it matter?

The ruling primarily affects legal entities whose management is closely linked to the activity of a single person, particularly when the director’s residence is located in a different canton from the company’s registered office.

A legal entity is subject to unlimited taxation in a canton if either its registered office or its place of effective management is located there. The place of effective management is defined as the location where the threads of corporate management come together.

This judgment strengthens the position of the company’s registered office canton in cases of tax domicile conflicts with other cantons. It confirms that any canton claiming a company’s place of effective management and therefore its unlimited tax liability, must provide sufficient evidence to support that claim. Assumptions based solely on the director’s residence are no longer permissible.

Practical recommendations

With today’s technological possibilities for remote work, it is becoming increasingly difficult, especially for person-centred companies, to determine the geographical focus of management. Therefore, it is important to properly document activities related to the ongoing management of the company, including:

• Business trips, locations of activity, and decision-making competences of management should be clearly and transparently documented.
• Major corporate decisions should be taken exclusively at the registered office and properly recorded.

Even though this ruling generally strengthens the canton of the registered office, purely “letterbox domiciles” are not advisable. A company’s registered office should still be chosen in a place where it has the necessary infrastructure and where management is predominantly carried out.

Authors: André Kuhn and Andrea Pfründer