#1. Legislative History

N. 1 Direct federal taxation is a historically controversial financing instrument of the Confederation. The time limitation of the competence, anchored in Art. 196 No. 13 Federal Constitution, reflects the federalist compromise between the financing needs of the Confederation and the fiscal sovereignty of the cantons. Since 1915, the federal competence to levy direct taxes has been repeatedly extended for limited periods. The new Federal Constitution of 1999 adopted the provision from the financial order (BBl 1997 I 544).

N. 2 The time limitation until 2035 (Art. 196 No. 13 Federal Constitution) is critically assessed in legal doctrine. Some commentators consider the time limitation inappropriate from a constitutional theory perspective, since the unlimited assumption of tasks by the Confederation necessarily presupposes secured unlimited financing.

N. 3 The introduction of cold progression compensation in para. 3 occurred with the referendum of 20 May 1991. Previously, cold progression had been compensated only irregularly and partially since 1973 (BBl 1990 I 1265).

#2. Systematic Classification

N. 4 Art. 128 Federal Constitution is part of the Confederation's financial order (Art. 126–135 Federal Constitution). The provision is closely connected with → Art. 127 Federal Constitution (principles of taxation), → Art. 129 Federal Constitution (tax harmonisation) and → Art. 196 No. 13 Federal Constitution (time limitation). The interplay of these provisions defines Switzerland's federal tax order.

N. 5 Executive federalism (para. 4) is characteristic of the Swiss financial order. The cantons assess and collect direct federal tax, although the material tax claim belongs predominantly to the Confederation (BGE 141 I 161 consid. 4.2.1). This provision systematically links federal tax with cantonal tax law.

N. 6 The anchoring of maximum rates in the Constitution (para. 1) is unusual. Some commentators emphasise that these material requirements certainly have constitutional relevance and are thus worthy of constitutional status.

#3. Elements of the Offence / Normative Content

N. 7 Tax competence (para. 1): The Confederation «may» levy a direct tax — this "may" formulation is deceptive, since direct federal tax is in fact a central source of financing for the Confederation. The competence encompasses:

• Income tax on natural persons (lit. a)
• Profit tax on legal entities (lit. b)

N. 8 Maximum rates: The Constitution sets absolute upper limits:

• 11.5% on the income of natural persons
• 8.5% on the net profit of legal entities

N. 9 The interpretation of the maximum rate of 11.5% is disputed. According to the prevailing doctrine, this is to be understood as an average tax rate. A minority opinion (BV 1874-Höhn/Vallender) interprets it as a marginal tax rate.

N. 10 Duty to take account (para. 2): The Confederation must take account of the tax burden imposed by cantons and municipalities when designing tariffs. This duty concretises the principle of economic capacity (→ Art. 127 para. 2 Federal Constitution).

N. 11 Cold progression (para. 3): The constitutional mandate requires "periodic" compensation. The FITL provides for a compensation mechanism in Art. 39 and Art. 128 para. 3 that takes effect when inflation reaches 7%.

N. 12 Executive federalism (para. 4): The cantons are obliged («The tax is...») to assess and collect direct federal tax. This establishes a "mandatory right" of the cantons (BGE 151 II 101 consid. 3.3.3).

#4. Legal Consequences

N. 13 For the Confederation: The competence to legislate on direct federal tax (FITL). The Confederation receives at least 83% of the gross yield (with a cantonal share of 17%).

N. 14 For the cantons: Assessment and collection obligation with entitlement to at least 17% of the gross yield. In case of improper assessment, the rulings are void; the cantonal share must be forwarded to the competent canton (BGE 151 II 101).

N. 15 For taxpayers: Entitlement to constitutionally compliant taxation within the maximum rates and to periodic compensation for cold progression.

#5. Controversies

N. 16 Time limitation of competence: Some commentators criticise the time limitation as inappropriate from a constitutional theory perspective. The opposing position emphasises the federalist compromise character of the provision.

N. 17 Interpretation of maximum rates: The dispute between average tax rate (Locher, Vallender/Looser) and marginal tax rate (BV 1874-Höhn/Vallender) remains undecided due to lack of practical relevance.

N. 18 Competence for rulings: Practice has decided that despite federal tax sovereignty, cantonal authorities are competent for rulings (BGE 141 I 161). The FTA has no original ruling competence, which is partly criticised in legal doctrine.

#6. Practice Notes

N. 19 In cases of inter-cantonal competence conflicts, the "either-or rule" applies: only one canton is competent (BGE 151 II 101). Double taxation must be avoided through inter-cantonal agreement.

N. 20 The interpretation of FTA circulars should be approached with caution. The Federal Supreme Court has repeatedly held that administrative ordinances of the FTA that violate federal law are to be disregarded (BGE 142 II 182).

N. 21 For the assessment of tax domicile in cases of relocation, the time of maturity is decisive, not the time of payment (BGE 142 II 182).

N. 22 Cantonal assessment authorities may issue a unified decision for cantonal and federal tax (BGE 135 II 260). This considerably simplifies the legal remedy procedure.

#Cantonal Implementation and Tax Sovereignty

BGE 151 II 101 of 7 August 2024: Reversal in cases of incompetent cantonal assessment. The Federal Supreme Court holds that the cantons have a "mandatory right" to assess and collect direct federal tax. If a canton claims direct federal tax without being entitled to do so, its decision is null and void. The incompetent canton must deliver the federal share to the Confederation and forward the cantonal share to the entitled canton.

«The cantons have the ‹mandatory right› to assess and collect direct federal tax. The ‹or› rule applies: affiliation exists only to one canton. In the ‹external› relationship, this canton also applies as tax creditor with regard to the federal share of direct federal tax.»

BGE 142 II 182 of 24 May 2016: Local jurisdiction in case of cantonal change after maturity of pension capital. Decisive for the interpretation of Art. 128 para. 4 BV is the principle of legality in tax law and implementation federalism. The FTA cannot violate federal law through administrative ordinances.

«Implementation federalism in the field of direct federal tax: The locally competent canton has the ‹mandatory right› to collect and assess direct federal tax. The FTA's administrative ordinance, according to which the canton of residence should be competent in cases of relocation, violates federal law and therefore remains irrelevant.»

BGE 141 I 161 of 24 August 2015: Competence for rulings on direct federal tax. Although the Confederation levies direct federal tax (Art. 128 para. 1 BV), the cantonal assessment authorities are generally competent for issuing rulings, not the FTA.

«The Confederation levies direct federal tax. The tax is assessed and collected by the cantons under federal supervision; at least 17% of the gross revenue falls to them, while they deliver the remaining 83% to the Confederation. Although the tax claim predominantly belongs to the Confederation, the competent canton is thus the tax creditor.»

#Procedural Aspects

BGE 135 II 260 of 5 March 2009: Admissibility of uniform decisions for cantonal and federal tax. The powers of the Federal Supreme Court in direct federal tax correspond to those it has for cantonal and municipal taxes. Therefore, cantonal instances can make a single decision for both taxes.

«The powers of the Federal Supreme Court in the field of direct federal tax correspond to those it has with regard to the areas of cantonal and municipal taxes listed in Art. 73 para. 1 StHG. To this extent, there is no need to require the filing of two separate appeals.»

#Tax Sovereignty Conflicts Between Cantons

Judgment 2C_946/2019 of 14 May 2020: Correction of legally binding decisions in case of jurisdictional defects. If a canton erroneously affirms its jurisdiction and incompetence is later established, an exception correction to the detriment of the taxable person can occur if the original decision was based on an obvious oversight.

Judgment 2C_76/2015 of 24 May 2016: Interruption of prescription through inter-cantonal notifications. For capital benefits from pension schemes, the cantons are obliged to inform each other about relevant facts, which can interrupt the course of prescription.

#Recent Developments on Tax Sovereignty

Administrative Court Zurich SB.2024.00013 of 8 May 2024: Actual administration for legal entities. In determining tax sovereignty, an overall assessment of all indications is required. The burden of proof for tax sovereignty lies with the claiming tax administration.

Administrative Court Zurich SB.2024.00066 of 6 November 2024: Proof of return after extra-cantonal residence. The facts underlying the determination of tax residence are tax-establishing and must therefore be proven by the tax authorities.

#Constitutional Limits

The supreme court case law on the maximum rates established in Art. 128 para. 1 BV (11.5% for natural persons, 8.5% for legal entities) is sparse, as these limits are not reached in practice. However, the Federal Supreme Court has repeatedly addressed the interpretation of the constitutional mandate regarding cold progression (Art. 128 para. 3 BV).

Comprehensive federal supreme court case law on cold progression is lacking, as the implementation of the constitutional mandate primarily falls within the legislative sphere of competence. However, parliamentary materials show that the compensation for cold progression has only occurred irregularly and partially since 1973.