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The Swiss Federal Court decision 9C_643/2022 could potentially have significant consequences regarding the deduction of lump-sum professional expenses that can be claimed by people who have a representation allowance as part of their remuneration.
Until now, several Federal Court decisions (2C_326/2008 of 23 September 2008 and 2C_73/2019 of 9 October 2020) had argued that the granting of a lump-sum representation allowance to an employee was meant to compensate for expenses actually incurred in their professional activity and, as such, excluded the lump-sum deduction for other professional expenses established by article 26, paragraph 1, letter c of the Federal Direct Tax Act (LIFD in French).
However, because of the decision 2C_804/2021 of 14 October 2022 (link to our article on the subject), the Federal Court has now taken a different approach. This decision made a clear distinction between work-related expenses (defined as all expenses incurred in the performance of the professional activity, linked to a concrete intervention by an employee on the behalf and by order of the employer and therefore serving the employer’s interests) and professional expenses (defined as expenses borne by the employee and caused by their performance of the activity, such as meal or transport expenses).
It follows that other professional expenses as defined in art. 26 par. 1 letter c of the Federal Direct Tax Act are also not expenses linked to a specific intervention by the employee acting in the name and on behalf of the employer, but instead costs incurred by the employee to earn his salary. Seeing as these costs must be borne by the employee themselves, they may be deducted from their remuneration within the cantonal and federal limits.
Additionally, in the aforementioned 2022 decision, the Federal Court had considered that as long as an expense regulation is approved by a cantonal tax authority, it must be concluded that reimbursement in the form of lump sum is equivalent to the employee’s actual expenses. Furthermore, it must be considered that as per the very definition of expenses, these reimbursements explicitly cover only costs related to the employee’s actions in the name and on behalf of their employer, rather than other professional expenses.
In view of the above, employees who receive a lump-sum representation allowance should also be able to claim the lump-sum deduction for other professional expenses established by the Federal Direct Tax Act. This runs counter to certain cantonal practices, notably in Ticino (whose practice was put into question by this court decision), but also that of the canton of Vaud.
