- 16.09.2026 - 10:00
The Residual Value Increase in Property Developments – Land Gain or Business Profit?
The Open Issue of Allocation under the Monistic System – An Analysis by Nils Harbeke
Where land is acquired, developed and subsequently sold, a “residual value increase” regularly arises that exceeds both the acquisition price of the land and the third-party price of the development – with the development activity itself being a constitutive factor in its creation. Whether this value increase is fully subject to real estate capital gains tax or contains a component that falls within the scope of ordinary income and corporate profit tax is a question of legal qualification “in principle” – not a question of whether the development costs are at arm’s length “in amount”. The article demonstrates that current practice derives a qualitative conclusion regarding the “real estate capital gain” directly from the quantitative findings of the arm’s-length comparison, without carrying out a separate legal classification. Measured against the standard set by Art. 12 of the Federal Act on the Harmonization of Direct Taxes of the Cantons and Municipalities (StHG), however, there is no legal basis for this approach. The author develops an analytical decomposition with a disclosed rate of value appreciation – drawing on the methodology of Circular Letter No. 15 – in order to clearly distinguish the portion of the value increase created through business activity from the real estate capital gain.
