Financial services: funds, offshore entities and requalification of management and performance fees

In particular, the court concluded that in the present case, a system had been set up for the sole purpose of evading taxation on profits attributable to Switzerland and passing them on to related parties. For this reason, in addition to the reattribution of the management and performance fees, a fine for tax evasion was also imposed.  

This decision reinforces the established principle that taxation must follow the creation of economic value, regardless of contractual designations or the formal location of the companies involved. It remains to be seen whether this is an isolated case or whether the tax authorities will increasingly examine the substance of foreign fund structures with Swiss investment advisors in the future.  

1. Background  

The company concerned (“Company A”), domiciled in Switzerland and active in the field of asset management, acted as investment advisor to a fund established in the Cayman Islands. According to the fund prospectus, the formal fund management function was entrusted to several offshore entities located in Singapore, the Bahamas and the United Arab Emirates.  

The cantonal proceedings show that the Geneva tax authorities concluded that these investment managers were unable to demonstrate any genuine management activity and that the key management functions were in fact performed from Switzerland. On this basis, the authorities issued additional tax assessments for several tax periods and imposed penalties for tax evasion amounting to 1.25 times the evaded taxes.  

These decisions were upheld by the Geneva Administrative Court in decision ATA/758/2025 and subsequently brought before the Federal Supreme Court.  

2. Dispute – Arguments – Decision  

The dispute concerned the tax allocation of the management and performance fees paid by the fund. Company A argued that, pursuant to the fund prospectus and the relevant agreements, such fees were lawfully due to the offshore companies acting as investment managers. It maintained that its role was limited to that of an investment advisor and that the management functions were performed out abroad.  

The Geneva tax authorities, with whom the Administrative Court agreed, found that the documents did not prove that the offshore companies performed any management activities. At best, the documents submitted showed an administrative role that had nothing to do with actual management activities. They also found that certain financial flows were subsequently transferred to persons closely associated with the company.  

The Geneva Administrative Court concluded that the essential management functions were in fact performed from Switzerland and that the corresponding management and performance fees were taxable in Switzerland. It applied the established criteria for tax avoidance, namely: an unusual structure, the absence of non-tax business reasons and the achievement of an effective tax benefit.  

The Federal Supreme Court confirmed this analysis. It held that the offshore companies did not perform the management services formally allocated to them and that the Swiss investment advisor carried out the decisive tasks relating to the management of the fund. The Court also confirmed that the conditions for tax avoidance were met, thereby justifying the taxation of the fees in Switzerland.  

3. Recommendations  

This decision highlights the critical importance, for fund management structures, of ensuring consistency between declared functions and economic substance. Where an offshore entity acts as a fund manager, it must be able to demonstrate genuine activity, including adequate personnel, documented decision-making processes and operational involvement commensurate with the level of remuneration.  

Contractual and operational documentation must accurately reflect the functions performed. Tax authorities place primary emphasis on economic reality rather than purely formal arrangements.  

Swiss investment advisors should therefore regularly review their fund structures, cash flows and governance frameworks to ensure that compensation is aligned with the services effectively rendered and to mitigate the risk of tax reclassification.  

4. Conclusion

Decision 9C_521/2025 addresses an extreme case in which offshore entities lacking substance received significant management and performance fees for activities largely carried out from Switzerland.  

In practice, most investment managers have sufficient substance to perform their duties. However, in cases involving Swiss investment advisors and affiliated investment managers abroad, it is strongly recommended that the agreed remuneration be reviewed based on a functional analysis and documented accordingly.  

For asset managers, this decision serves as a clear reminder: only services performed abroad justify corresponding remuneration.  

Author: André Kuhn