12 février 2026 | Legal Insight
Swiss Federal Supreme Court specifies
intercantonal profit allocation rules
for large construction sites
12 février 2026 | Legal Insight
Swiss Federal Supreme Court specifies
intercantonal profit allocation rules
for large construction sites
In its decision of 29 December 2025 in case 9C_231/2024, published on 5 February 2026, the Swiss Federal Supreme Court clarified that large construction sites are treated like manufacturing establishments for intercantonal profit allocation. Where separate accounts for each permanent establishment (PE) are unavailable, profits must be apportioned using the indirect method guided by production factors, and a purely wage-based key can be constitutionally compliant if the capital component is not meaningfully present at the establishment level.
Because intercantonal allocation rules rest on case law issued by the Federal Supreme Court rather than codified law, any further development in intercantonal profit allocation rules matters for tax practice. Since the 1980s, the Court has recognised that major construction worksites can constitute permanent establishments (PEs) for intercantonal taxation purposes even without permanent fixed structures. However, the profit allocation rules applicable to such construction worksites have not yet been the object of judicial precedent.
The case at hand arose out of the Gotthard Base Tunnel, often described as Switzerland's project of the century. The taxpayer, a leading European construction enterprise, worked through consortia with substantial worksites in Ticino and Uri and managed the project from offices in Nidwalden and Zurich.
In 2013, the taxpayer and the involved cantons agreed on an intercantonal allocation method based on wage costs paid in each canton. When assessing the tax years 2013 to 2016, the Ticino tax authority chose not to follow said tax ruling and instead reallocated profit using the length of track within its territory, which materially increased its share. The Ticino tax court endorsed the kilometre-based approach on the premise that construction sites lack fixed structures and that, as a result, the standard production-factor method used for manufacturing and construction enterprises could not apply. It also rejected the taxpayer’s reliance on the binding nature of the 2013 agreement, holding that the taxpayer had misled the Ticino tax authority by not disclosing all relevant facts in the ruling request.
The Federal Supreme Court granted the taxpayer’s appeal and rejected the Ticino court’s reasoning. It reiterated that large construction sites of the type at issue qualify as PEs for intercantonal tax allocation. Having accepted the characterisation as a PE (which was not disputed), the allocation must then follow the established framework. In the absence of separate accounts, the indirect method applies and must be tailored to the enterprise’s activity through auxiliary criteria that capture the establishment’s contribution to profit.
Against that backdrop, the Court examined the method agreed in 2013 and found it compatible with the constitutional prohibition of intercantonal double taxation. For manufacturing and construction enterprises, production-factor allocation ordinarily considers both labour and capital. In this specific case, however, capital proxies such as assets and lease payments were not present, while the worksite's contribution was driven by specialized labour engaged in a unique engineering project. The Court therefore sided with the taxpayer and accepted a wage-based key without a capital component.
Given that the case could be resolved on constitutional intercantonal profit allocation grounds, the Court did not address whether the 2013 agreement was binding upon the tax authority. It annulled the cantonal judgment and remanded the matter to the Ticino tax authority for a new assessment consistent with the agreed wage-based method.
The decision provides useful guidance for structuring allocation in multi-canton construction projects. It provides a first precedent on the rules that apply to determine intercantonal apportionment of profits in case of construction projects and confirms that worksite construction follows the same apportionment rules as manufacturing businesses, if necessary, with adaptations as to the production factors. In either case, careful documentation of why specific factors apply or do not apply will help align practice within the framework the Court has now set out.
Because intercantonal allocation rules rest on case law issued by the Federal Supreme Court rather than codified law, any further development in intercantonal profit allocation rules matters for tax practice. Since the 1980s, the Court has recognised that major construction worksites can constitute permanent establishments (PEs) for intercantonal taxation purposes even without permanent fixed structures. However, the profit allocation rules applicable to such construction worksites have not yet been the object of judicial precedent.
The case at hand arose out of the Gotthard Base Tunnel, often described as Switzerland's project of the century. The taxpayer, a leading European construction enterprise, worked through consortia with substantial worksites in Ticino and Uri and managed the project from offices in Nidwalden and Zurich.
In 2013, the taxpayer and the involved cantons agreed on an intercantonal allocation method based on wage costs paid in each canton. When assessing the tax years 2013 to 2016, the Ticino tax authority chose not to follow said tax ruling and instead reallocated profit using the length of track within its territory, which materially increased its share. The Ticino tax court endorsed the kilometre-based approach on the premise that construction sites lack fixed structures and that, as a result, the standard production-factor method used for manufacturing and construction enterprises could not apply. It also rejected the taxpayer’s reliance on the binding nature of the 2013 agreement, holding that the taxpayer had misled the Ticino tax authority by not disclosing all relevant facts in the ruling request.
The Federal Supreme Court granted the taxpayer’s appeal and rejected the Ticino court’s reasoning. It reiterated that large construction sites of the type at issue qualify as PEs for intercantonal tax allocation. Having accepted the characterisation as a PE (which was not disputed), the allocation must then follow the established framework. In the absence of separate accounts, the indirect method applies and must be tailored to the enterprise’s activity through auxiliary criteria that capture the establishment’s contribution to profit.
Against that backdrop, the Court examined the method agreed in 2013 and found it compatible with the constitutional prohibition of intercantonal double taxation. For manufacturing and construction enterprises, production-factor allocation ordinarily considers both labour and capital. In this specific case, however, capital proxies such as assets and lease payments were not present, while the worksite's contribution was driven by specialized labour engaged in a unique engineering project. The Court therefore sided with the taxpayer and accepted a wage-based key without a capital component.
Given that the case could be resolved on constitutional intercantonal profit allocation grounds, the Court did not address whether the 2013 agreement was binding upon the tax authority. It annulled the cantonal judgment and remanded the matter to the Ticino tax authority for a new assessment consistent with the agreed wage-based method.
The decision provides useful guidance for structuring allocation in multi-canton construction projects. It provides a first precedent on the rules that apply to determine intercantonal apportionment of profits in case of construction projects and confirms that worksite construction follows the same apportionment rules as manufacturing businesses, if necessary, with adaptations as to the production factors. In either case, careful documentation of why specific factors apply or do not apply will help align practice within the framework the Court has now set out.
