In its ruling 9C_690/2022 of July 17, 2024, a five-judge panel of the Swiss Federal Supreme Court ruled on the binding effect of the "safe harbour" interest rates published annually by the Swiss Federal Tax Administration ("SFTA"). According to the Supreme Court, the tax authorities are not bound by the published interest rates if interest rates agreed between associated companies are below or above the published minimum or maximum rates. In this case, according to the Federal Supreme Court, the tax authorities must instead determine the "actual" arm's length interest rate.
The appellant company (A. AG), a subsidiary of a corporation incorporated based on federal law (B. AG), is subject to limited tax liability in the Canton of Zurich on the basis of permanent establishments. [1] In 2013, A. AG entered into a credit facility agreement with its parent company with a maximum credit limit of CHF 1 billion. On the basis of this agreement, the two companies agreed on a fixed term loan (61 months) of CHF 500 million at an interest rate of 2.5% per annum. For the difference between the credit limit and the fixed loan, a current account was agreed at an interest rate of 3% per annum.
The Cantonal Tax Administration of Zurich ("TA ZH") took the view that the agreed interest rates were not at arm's length, in particular because the existing government guarantee of the parent company had not been taken into account when determining the disputed interest rates. The TA ZH subsequently claimed deemed dividends for the 2014 and 2015 tax periods. The deemed dividends were initially calculated on the basis of an interest rate of 1% per annum, which was determined at the discretion of TA ZH. A. AG's objection to this was partially upheld by the tax administration and the at arm's length interest rate was set at 1.08%. The TA ZH calculated the rate of 1.08% on the basis of the average interest rate for the refinancing of B. AG with bonds of 0.83% and added a margin of 0.25%. This approach was confirmed by the Tax Appeal Court of the Canton of Zurich in its decision of March 10, 2002.
The Administrative Court of the Canton of Zurich partially upheld the appeal against the ruling of the Tax Appeals Court and referred the case back to the lower court for recalculation and a new ruling in line with the considerations. In essence, the Administrative Court was of the opinion that the interest rates published annually by the SFTA should be adhered to and that these rates define the arm’s length range of applicable interest rates. A correction of a not at arm’s length interest rate was therefore only possible to the amount of the published minimum or maximum interest rates. The TA ZH appealed against this ruling to the Federal Supreme Court, which rejected the position of the Administrative Court and upheld the opinion of the TA ZH.
On the merits of the case, the Federal Supreme Court addressed the objection raised by TA ZH that the interest rate circulars published by the SFTA are not applicable to state and cantonal income taxes and are only binding for the purposes of federal income tax and withholding tax. In this respect, the Federal Court recalled that the income tax rules are harmonised between the federal and cantonal levels, which means that the SFTA interest rates are also applicable to federal and cantonal income taxes.[2]
With regard to the nature of the SFTA circulars on permissible interest rates, the Federal Supreme Court first stated that they serve to simplify the application of the arm's length principle. The simplification lies in the fact that the published interest rates, as "safe harbour rules", justify the assumption that there is no deemed dividend if the taxpayer complies with these rules. [3] Conversely, or if the taxpayer deviates from the published rates, there is a rebuttable presumption of a deemed dividend. In this case, it is up to the taxpayer to prove that the interest payments are in fact at arms' length. In addition, the Federal Supreme Court stated that the interest rate circulars of the SFTA should only be deviated from if the applicable legal provisions are not convincingly specified. [4]
With regard to the case at hand, the Federal Supreme Court stated that the binding effect of the interest rate circulars only exists as long as the taxpayer itself adheres to the interest rates defined therein. If the taxpayer deviates from these rates, there is no reason why the tax authority should continue to be bound by the safe harbour rules and not be allowed to determine the actual arm's length interest rate. [5] In these cases, there is neither a violation of the protection of legitimate expectations nor of the principle of equal treatment, especially since the taxpayer itself has deviated from the SFTA interest rates. Finally, the deviation from these interest rates would also undermine the purpose of the safe harbour rules, i.e. administrative simplification, as the tax authorities would have to check in these cases whether the interest rate claimed was in line with the arm's length principle. [6] Against this background, the Federal Court did not see any violation of the law in the TA ZH's determination of what it considered to be the arm's length interest rate, which deviated from the FTA interest rates.
However, with regard to the actual determination of the arm's length interest rate by the TA ZH, the Federal Supreme Court found that the Administrative Court of the Canton of Zurich had not addressed the issue of the legitimacy of taking into account a "margin" of 0.25% based on the interest rate circulars of the SFTA. In this respect, the Federal Supreme Court referred the matter back to the lower court for reconsideration.
The above-mentioned decision of the Federal Court raises several questions, both in terms of its reasoning and its possible consequences for practice, which will be addressed in the following.
To the extent that the Federal Court has denied a violation of the principle of equal treatment, one can agree with the court as long as it will be ensured that the tax authorities consistently apply the arm's length interest rate in all cases where a taxpayer deviates from the SFTA interest rates. In other words, the tax authorities should not be able to rely on the SFTA rates on a case-by-case basis as this would lead to unequal treatment of taxpayers who deviate from the SFTA rates. Similarly, the individual application of the effectively higher administrative costs by the tax authorities when assessing the participation exemption would also violate the principle of equal treatment – to the extent that this was actually intended by the legislator .[7] – gegen den Grundsatz der Gleichbehandlung.[8]
The Federal Court's argument that the purpose of the interest rate circulars in terms of administrative simplification can no longer be achieved if the taxpayer deviates from the maximum permissible interest rates is not entirely convincing, if at all. According to the case law of the Federal Supreme Court, the tax authorities can no longer limit themselves (while maintaining the principle of equal treatment) to examining the transfer pricing studies submitted as evidence of the arm's length principle, but must now - if they are of the opinion that the arm's length principle has not been verified - determine the effective market interest rate. It is true that the taxpayers' (attempted) proof of arm's length interest rates, as opposed to the SFTA interest rates, involves additional work for the tax authorities. However, this in itself only partially limits the purpose of administrative simplification. This purpose is only completely thwarted by the TA ZH's position, now confirmed by the Federal Court, that it is the tax authority's task to determine the specific market interest rate to be applied (and not merely a range of arm’s length interest rates). If it is indeed (only) a matter of administrative simplification, there is no obvious reason why the SFTA interest rates could no longer be used as a basis (for simplification reasons) if the arm's length interest rate cannot be proven. Instead, the tax authorities will have to determine the arm's length rate in accordance with best practice.
With regard to the requirements for the tax authorities to provide evidence of what they consider to be the arm's length interest rate, it seems reasonable to apply the same requirements for the evidence of the arm's length principle or the transfer pricing study as those defined in the SFTA applicable to taxpayers. The transfer pricing study to be carried out by the tax administration would therefore have to include the following elements, whereby the taxpayer's duty of cooperation could be invoked for the first two points[9]:
In terms of applicable transfer pricing methods, the Comparable Uncontrolled Price Method (CUP Method) is the primary transfer pricing method to be used for interest rates. In addition, the cost of funds method is also recognised in Swiss practice and appears to have been used by TA ZH in the present case. According to this method, the interest rate is determined on the basis of the lender's cost of funds plus a risk premium and a profit margin. The determination of the margin requires a case-by-case assessment, taking into account the borrower's credit rating. Against this background, the Federal Court's decision to refer the case back to the Administrative Court with regard to the 0.25% interest margin applied by TA ZH, which in turn is based on the SFTA's interest rate circular, is only consistent in the light of the other considerations.
Lastly, the statement by the Federal Court that it is the task of the tax authority to determine a specific interest rate to be applied and not (merely) a range of interest rates also raises questions. This statement cannot be reconciled with state-of-the-art transfer pricing methodology. The Federal Court fails to recognise that, in principle, only a range can be determined for the market interest rate or that it is unlikely that there is only one market interest rate for a specific transaction. [10] The principle applies that a correction to the actual terms agreed between related parties is only permitted at the upper or lower end of the identified arm’s length range. This principle has now been unnecessarily called into question by the Federal Supreme Court, at least as far as interest rates are concerned. It is also questionable to what extent the interest rates published by the SFTA correspond to the arm's length principle, if they cannot be used as a basis for determining deemed dividends. In this context, it should be noted that some tax administrations have taken the view that the range of arm's length interest rates is relatively narrow, meaning that a deviation of more than 25% from the SFTA interest rates is per se inconsistent with the arm's length principle and that the taxpayer is (effectively) denied the opportunity to provide rebuttal evidence. [11] This position can no longer be maintained if the case law of the Federal Court is consistently applied.
With regard to the specific facts of the present case, it can be said that the deviation of the TA ZH from the SFTA interest rates can be regarded as appropriate in individual cases. However, the reasoning chosen by the Federal Supreme Court to justify the deviation from the SFTA interest rates is not convincing and leads to unnecessary uncertainties. It would have been more appropriate to emphasise the special nature of the individual case at hand and thus follow a factual line of reasoning. In this respect, the Federal Supreme Court could have referred to the general rule that the interest rate circulars of the SFTA can (only) be deviated from if they do not convincingly specify the applicable legal provisions, which could certainly have been argued in the present case.
It would now be desirable for the SFTA to take the present decision of the Federal Court as an occasion to amend its interest rate circular and, in particular, to define more precisely the scope of application of the safe harbour rules. [12] This would increase legal certainty for taxpayers, and the expected additional workload for the tax authorities could be mitigated. In this context, it should be noted that the credit rating of the borrower and the specific structure of the financing are of considerable importance in determining an arm's length interest rate on a case-by-case basis. For example, the impact of collateral, maturity and prepayment rights (or lack thereof), as well as whether and how implicit group support or a group rating should be taken into account, must be assessed.
Since deviation from the SFTA's interest rate circulars has always led to a de facto obligation to provide evidence of the arm’s length of the interest rates used, it is still recommended - also in light of the discussed decision - that groups prepare a robust transfer pricing analysis and documentation.
Zurich, August 23, 2024
[1] For a more detailed description of the facts, see the ruling of the Administrative Court of the Canton of Zurich SB.2021.00056 of May 25,2022..
[2] Judgment FSC 9C_690/2022 of July 17, 2024, E. 6.1.
[3] Judgment FSC 9C_690/2022 of July 17, 2024, E. 4.1.
[4] Judgment FSC 9C_690/2022 of July 17, 2024, E. 4.2.
[5] Judgment FSC 9C_690/2022 of July 17, 2024, E. 6.2.
[6] Judgment FSC 9C_690/2022 of July 17, 2024 E. 6.2. in fine
[7] Cf. GRETER, Der Beteiligungsabzug im harmonisierten Gewinnsteuerrecht, Diss., Zurich 2000, p. 142.
[8] Cf. Attenhofer, in: Klöti-Weber/Schudel/Schwarb, Kommentar zum Aargauer Steuergesetz, 5th edition, Bern 2023, para 35 to § 27b; Vitali, ibid., para. 86 to § 76,
[9] See https://www.estv.admin.ch/estv/de/home/internationales-steuerrecht/verrechnungspreise.html, question 23.
[10] See https://www.estv.admin.ch/estv/de/home/internationales-steuerrecht/verrechnungspreise.html, question 32.
[11] See Harbeke/Hug/Scherrer, Verrechnungspreisrecht der Schweiz, Grundlagen und Praxis, Zürich, 2022, para. 1188.
[12] See also the criticism of the SFTA interest circulars in Harbeke/Hug/Scherrer, a.a.O., para. 1226.
In our blog post from May (on the ruling of the Federal Administrative Court of 7 December 2023, A-1573/2022), we looked at the function of an online platform in the area of delivery services. The case was referred to the Federal Supreme Court (FSC). In its decision, the Federal Supreme Court did not follow the lower court and qualified the platform as a mere intermediary for food deliveries.
Refresher: The taxable person operated an online platform via which customers could order food and have it delivered to them. Various restaurants offered their dishes on the platform. The platform took the view that it itself was the supplier of the meals (and did not merely mediate between customers and restaurants). Accordingly, it invoiced "its" services (delivery of the dishes including delivery service fees) to the customers at the reduced tax rate. The FTA, on the other hand, took the view that the platform was merely an intermediary between restaurants and customers. Accordingly, only the restaurants were allowed to invoice their services at the reduced rate. The services provided by the platform itself were to be taxed at the standard rate. The Federal Administrative Court (FAC) agreed with the taxpayer's view. It based its decision essentially on the presumed perception of the customers when using the platform (selection of meals, ordering, payment and delivery). However, the FAC did not consider the fact that, for example, the general terms and conditions (GTC) expressly identified the platform as an intermediary to be of such importance as to override the overall perception.
The Federal Administrative Court (FAC) agreed with the taxpayer's view. It based its decision essentially on the presumed perception of the customers when using the platform (selection of meals, ordering, payment and delivery). However, the FAC did not consider the fact that, for example, the general terms and conditions (GTC) expressly identified the platform as an intermediary to be of such importance as to override the overall perception.
From 8 August (9C_67/2024)
In its decision, the FSC focuses on objective criteria such as general terms and conditions and invoice documents when analysing the presumed customer perception. In particular, the platform had named the partner restaurants and these were known to the customers when using the platform and, from the FSC's point of view, it was always recognisable to the users that they obtained the food directly from the partner restaurants and not from the platform (through corresponding information during the ordering process and in the GTC).
The judgement of the FSC should provide more legal certainty for taxpayers, as it gives greater weight to written documentation in the form of GTCs, for example. As an overall view of the circumstances in the specific case is decisive, the considered design of the external appearance remains of crucial importance.
Unlike in other European countries, in Switzerland the acquisition, holding and sale of participations is considered a business activity that generally entitles the holder to deduct input tax. The law contains a definition of what constitutes a participation in this sense (hereinafter "qualified participation") in Art. 29 Para. 3 of the VAT Act: Participations are shares in the capital of other companies that are held with the intention of permanent investment and which convey a significant influence. Shares of at least 10% of the capital are deemed to be a participation. However, it is unclear how the 10% limit in particular is to be interpreted: does a legal presumption apply above 10%? Or is a participation excluded if less than 10% is held? The Federal Administrative Court has taken a position on this (judgement of 17 July 2024, A-903/2023).
X AG holds a 9% stake in A AG. It has granted a loan to B AG. It requested confirmation from the FTA that its 9% shareholding in A AG and the loan to B AG are deemed to be qualifying holdings. X AG took the view that the provision in the second sentence of the legal definition was a "safe haven rule" in which the existence of a participation was automatically assumed. Below this threshold, the existence of a qualifying holding must be examined on a case-by-case basis. The FTA pointed out that shareholdings of less than 10 % of the capital are not deemed to be a qualified participation and that the granting of a loan does not constitute a participation in this sense either. X AG could therefore not claim an input tax deduction in this context.
In the present case, the question was whether the complainant was entitled to deduct the input tax it had claimed. In order to be able to assess this, it was first necessary to examine whether the appellant is liable for VAT, i.e. whether it holds participations within the meaning of Art. 29 para. 3 of the VAT Act.
The Federal Administrative Court comes to the conclusion that the limit of 10% set out in Art. 29 para. 3 VAT is not an absolute value. The interpretation rather points to a "safe haven rule", according to which a participation of at least 10% is in any case considered a participation within the meaning of this article. For shares of less than 10%, however, the taxpayer can and must provide evidence that a qualified participation nevertheless exists, which in particular "conveys significant influence". The court does not conclusively comment on whether, even in the case of shareholdings of at least 10%, it is open to the tax authorities to prove that the shareholding is not held for business reasons but merely as a financial investment.
The question of how to successfully prove significant influence also remains unanswered. In the present case, the appellant was unable to provide proof of significant influence in the view of the court, which therefore rejected the appellant's view that it was entrepreneurial in this respect within the meaning of Art. 10 para. 1ter VAT Act.
The court also rejected the appellant's view that a loan could constitute a qualified participation. Shares in the capital of other companies are consistently understood as "participations". Receivables do not constitute participations.
It is positive that even in the case of shareholdings of less than 10%, the taxable person is free to prove that they have a qualifying holding within the meaning of Art. 10 para. 1ter MWSTG. It remains unclear how this proof can be provided. It should be viewed critically that the court leaves open whether the FTA reserves the right to negate a qualified participation even in the case of participations of more than 10%.
In the context of this judgement, it is also important to always bear in mind that VAT inspections must not tempt taxable persons to lull themselves into a false sense of security. A failure to raise an objection during a VAT inspection does not provide any protection of confidence that the same facts will not be objected to by the FTA in the future. The situation is similar with rulings, in which the FTA only ever comments on the facts of the case described and within the framework of the questions raised. Incomplete or incorrect facts do not give rise to any protection of legitimate expectations and the protection of legitimate expectations cannot go beyond the questioned treatment.
Caution should be exercised when classifying the remuneration of financial intermediaries for VAT purposes, as even terms that are clearly defined in administrative practice can be interpreted very differently depending on the circumstances.
In the present dispute, the complainant acted as an asset manager. She received two types of compensation for her activities under an asset management agreement: On the one hand, she was paid the brokerage fees paid by the asset management clients plus brokerage fees from the bank; on the other hand, she received a monthly management fee. Under the brokerage agreements with two different banks, the complainant received remuneration or external asset management fees resulting from the activities recorded in the clients' accounts.
The question is how to qualify these fees for VAT purposes. Even if terms are listed and defined in black and white according to administrative practice, these terms (in this case charges) would have to be analysed precisely and placed in the correct context, otherwise the results would be completely different.
In the present case, it is undisputed that the complainant acts as an asset manager and that the monthly management fee is subject to VAT at the standard rate. However, it is disputed whether the brokerage fees and external asset management fees are remuneration for a tax-exempt brokerage service or a taxable asset management service.
In case law and administrative practice, the view is held that the underlying transaction brokered is decisive for the categorisation of an intermediary activity. If the underlying transaction originates from the area exempt from tax, the remuneration for the brokerage is exempt from tax.
As an asset manager, the appellant offers both investment advice and execution for its clients and also receives separate and contractually agreed remuneration for these services. In the opinion of the complainant (based on point 6.1.6 of MBI 14 and on the previous case law of the Federal Supreme Court), brokerage fees (called: Courtagen) for execution are deemed to be exempt fees for trading in securities. Alternatively, the asset management service should be regarded as an exempt ancillary service to the brokerage service, as the European Court of Justice (ECJ) has already ruled in a similar case (C-453/05, 21 June 2007).
The complainant is of the opinion that it provides brokerage services in accordance with administrative practice. Non-application of this administrative practice would violate the constitutionally guaranteed protection of legitimate expectations.
Brokerage is clearly defined in section 5.10.1 of MBI 14 and refers to the activity of an intermediary acting in this capacity, which consists of working towards the conclusion of a contract in the area of money and capital transactions between two parties without being a party to the brokered contract and without having a vested interest in the content of the contract. Brokerage must be carried out as an independent intermediary activity.
The FTA, on the other hand, considered the appellant's performance to be taxable asset management based on section 5.10.3 of MBI 14 and further believes that the financial contributions (retrocessions) represent a self-interest due to the obligation to deliver, which in turn would be contrary to exempt brokerage.
The Federal Supreme Court is of the opinion that the complainant's execution service is to be regarded as ancillary to the main service of investment advice or asset management, as this service would not make sense on its own. It merely serves as an instrument for utilising the complainant's main service under optimal conditions. This type of service has no independent purpose for clients. If there were no asset management mandates, no client would utilise the execution services alone, but would commission a bank to do so.
Although the appellant is convinced that brokerage fees cannot be listed separately as an ancillary service in administrative practice, the Federal Supreme Court finds that the same service may have to be assessed differently depending on the context. In this case, the execution service (ancillary service) only fulfils a purpose in the context of an asset management mandate (main service).
With regard to the protection of legitimate expectations, the Federal Supreme Court points out that Chapter 6.1 of MBI 14 cited by the complainant under the heading "General banking services" refers specifically to services offered by banks. Therefore, the protection of legitimate expectations cannot be invoked in this context.
This judgement illustrates the relevance of a precise determination of the underlying service in the context of an intermediary activity. In this regard, it should be noted that even the explanations and terminology used in administrative practice are only valid in their respective context.
Christoph Drexl, Taxation of trade fair services in the EU, WEKA
MWST Newsletter 09 of 8 October 2024
This report will be published in full in three months. If you would like a complete version now, you can download it from the website weka.ch beziehen.
Christoph Drexl, Filling out VAT returns correctly, WEKA
MWST Newsletter 09 of 2 October 2024
This report will be published in full in three months. If you would like a complete version now, you can download it from the website weka.ch beziehen.
René Matteotti / Christian Attenhofer, Analysis of the Federal Supreme Court case law on international administrative assistance in tax matters from the second half of 2023, ASA 92 (2023/2024), pp. 965-977
Switzerland committed to extend the international automatic exchange of information to include cryptoassets and salary data, whereby salary data is only exchanged with Italy and France. In order to establish the necessary legal foundation, the Federal Council has submitted amendments to the existing Federal Act on the Automatic Exchange of Information and the introduction of a new Federal Act on the Automatic Exchange of Information on Salary Data for consultation. The main points are outlined below.
In fall 2022, the OECD presented an automatic exchange of information ("AEOI") specifically for digital assets, the so-called Crypto Asset Reporting Framework ("CARF"). In November 2023, around 50 countries, including Switzerland, agreed to extend the AEOI to digital assets and the CARF. The CARF is intended to close existing gaps in the tax transparency regime and eliminate the different treatment of "traditional" financial products and crypto products. It is planned to enact the crypto AEOI on January 1, 2026, so that the first data exchange on the basis of the CARF can take place in 2027. To this end, the international legal basis must first be approved by Parliament and the existing Federal Act and the AEOI must be amended accordingly. At the same time, various recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes regarding the already existing AEOI will also be implemented. In this regard, the Federal Council opened the consultation process on 15 May 2024 (see here).
The AEOI for cryptocurrencies follows the same system as the AEOI for financial accounts. It provides for the automatic and regular exchange of information on transactions involving cryptocurrencies. The information to be exchanged is to be collected by the providers of crypto services subject to the reporting obligation and transmitted to the Swiss Federal Tax Administration (“SFTA”) once a year. The information to be exchanged and the qualification as a reportable provider of crypto services are regulated as follows in the multilateral agreement on the crypto AEOI and in the DTA.
Who: Legal entities and natural persons are subject to the CARF reporting obligations, if they provide services for or on behalf of their customers in the form of exchange transactions between various relevant cryptocurrencies and between relevant cryptocurrencies and fiat currencies. As such services also qualify the providing trading platforms or by assuming the role of a counterparty or an intermediary in the aforementioned exchange transactions.
About whom: Reportable users within the meaning of the CARF are natural persons and legal entities (including trusts and foundations) that are clients of a reportable provider of crypto services and are not exempt from the reporting obligation. The beneficial owners of the cryptocurrencies in question are also deemed to be reportable clients. The purpose of recording the beneficial owners is to prevent circumvention of the AEOI.
What: The reports must generally contain information on the identity of the person subject to the reporting obligation (name, address, date of birth, tax residency, tax identification number, etc.) and on the transactions carried out (type of cryptoasset, total gross amount, total number of units, number of transactions, staking and lending fees etc.). The information on the provider of the crypto services concerned subject to the reporting obligation must also be provided.
How: In order to identify the reportable users of cryptocurrencies, determine the countries relevant for tax reporting and obtain the necessary information, the CARF contains diligence obligations for the reportable providers of crypto services. The intentional breach of these diligence obligations and other obligations under the AEOI can be punished with fines of up to CHF 250,000. In the event of negligence, the fine is up to CHF 100,000.
Potentially reportable providers of crypto services are recommended to check as early as possible whether they or their services fall within the scope of the Crypto AEOI and - if a reporting obligation exists - to implement appropriate processes to ensure reporting.
On June 7, 2024, the Federal Council opened the consultation on a new federal law on the automatic exchange of salary data (see here). The draft of this law is based on the agreements that Switzerland was able to conclude with Italy and France to create new rules for the taxation of cross-border commuters (Italy) and the taxation of teleworking (France).
On 23 December 2020, Switzerland was able to conclude a new "cross-border commuter agreement" with Italy. This agreement entered into force on July 17, 2023 and has been applicable since January 1, 2024. In addition to the redefinition of the term "cross-border commuter" and the new allocation rules for taxable income, the agreement provides for the automatic exchange of information on salary data under the title of "Administrative cooperation". According to the new cross-border commuter agreement, persons are deemed to be cross-border commuters if they
Under the new agreement, “new” cross-border commuters who are resident in the Italian border region and are gainfully employed by an employer based in the Swiss border region or have a corresponding permanent establishment will be subject to ordinary taxation in Italy. However, Switzerland may tax the income at 80% of the withholding tax, whereby Italy credits this tax to avoid double taxation. Existing cross-border commuters, i.e. those who already qualified as cross-border commuters between December 31, 2018 and July 17, 2023 and are still considered cross-border commuters under the new agreement, will continue to be taxed exclusively in Switzerland. The cantons of Grisons, Ticino and Valais are obliged to pay 40% of this tax revenue to the Italian border communes until December 31, 2033.
In order to ensure the correct taxation of new cross-border commuters, the cross-border commuter agreement provides for the automatic exchange of salary data. For employers in the cantons of Grisons, Ticino and Valais, this means that they must report salary data and other information on the person concerned for all cross-border commuters resident in Italy to the cantonal tax authorities for the first time at the beginning of 2025 for the 2024 calendar year. The tax authorities of the cantons of Grisons, Ticino and Valais will then be responsible for forwarding the information.
In relation to France a supplementary agreement to the existing double taxation agreement was concluded on June 27, 2023, which was adopted by Parliament on June 14, 2024 (see hier). With this supplementary agreement, the tax attribution standards for teleworking previously regulated in various mutual agreements will be transferred to the DTA and the protocol to it. The new regulation stipulates that 40% of the working time per calendar year can be performed in the form of teleworking without the employee's country of residence having the right to tax the wages paid. This regulation applies to the whole of Switzerland, with the exception of cross-border commuters who work in the cantons of Basel-Landschaft, Basel-Stadt, Bern, Jura, Neuchâtel, Solothurn, Vaud and Valais. Although the same tolerance of 40% applies to them, they are technically not covered by the DTA.
The employer's state pays the other state compensation amounting to 40% of the tax owed for work performed in the form of teleworking. However, a special rule applies to employers in the canton of Geneva: Here an exemption limit of 15% of the working days for which no compensation payment has been established. In other words, a compensatory payment is only due for teleworking days that account for between 15% and 40% of working time. This provision was included in the agreement since Geneva must continue to pay the departments of Ain and Haute-Sovoie a compensation payment amounting to 3.5% of the gross salary of cross-border workers employed in Geneva. France did not want to waive this payment for domestic political reasons.
It is obvious that monitoring compliance with the aforementioned regulations requires detailed and reliable information on the activities and remuneration of the persons concerned. France has therefore expressed the wish for many years to compare the salary amounts reported by Switzerland with the income declared in France by cross-border commuters. With the supplementary agreement of June 27, 2024, an automatic exchange of information for salary data has now been included. In addition to the personal details of the persons concerned, the following information must be transmitted: Calendar year in which the income was earned; number of teleworking days or teleworking rate in percent; total amount of gross remuneration paid. The introduction of the exchange of information is planned for the beginning of 2026, which means that employers in all Swiss cantons will have to submit information to the competent tax authorities for the first time at the beginning of 2026 for the calendar year 2025 for all employees residing in France. In contrast to the exchange of information with Italy, salary data will be reported to France via the SFTA.
As the international automatic exchange of salary data is being introduced for the first time, the Federal Council intends to create the necessary legal basis for this in a new federal law, the Federal Act on the International Automatic Exchange of Information on Salary Data. In addition to the procedure, responsibilities and confidentiality obligations, the new law also covers the rights of employees. In particular, they have a right to information about the information concerning them and to be transmitted, as well as the rights arising from the Data Protection Act. Finally, the penal provisions should also be emphasized for employers. Negligent or intentional violation of the obligation to provide information that must be reported and violation of the obligation to provide information to employees can be penalized with a fine of up to CHF 1,000. In serious cases or in the event of recidivism, the fine can be set at up to CHF 10,000.
As shown above, the expansion of the international automatic exchange of information to include crypto and salary data also entails corresponding obligations for information holders, i.e. crypto service providers and employers. It is advisable - not least with regard to the criminal provisions - to check at an early stage whether and to what extent the described extensions are relevant for your own company and, if necessary, to set up appropriate processes to ensure the timely and correct provision of the data to be transmitted. It remains to be seen whether and when the automatic exchange of wage data will also be introduced in relation to Germany and Austria.
The VAT treatment of "simple" supplies of goods can lead to complex VAT issues in individual cases. It becomes even more complex when additional elements are added to the element of a pure supply of goods. In these cases of "complex supplies", the terms contractual supply of goods (“werkvertragliche Lieferung”), supply under a contract for work and labour (“Werklieferung”) and supply and assembly of goods (“Montagelieferung”) are used in the German speaking DACH region (Switzerland, Germany and Austria). What do these terms mean from a VAT perspective? And do they differ at all?
The "werkvertragliche Lieferung" is a speciality of Swiss VAT with its very broad understanding of a "supply of goods". There is no definition in either the law or the ordinance. The FTA considers a "werkvertragliche Lieferung" to be "all supplies of movable or immovable goods that are newly manufactured or processed before delivery on the basis of a contract for work and services or an order", see VAT Info 06 "Place of supply", point 3.1. The extent of the processing is irrelevant. It is also not necessary for material to be used, replaced or added as part of the processing.
The definition in the VAT information on the "place of supply" shows the primary importance of the “Werklieferung” in contrast to a "simple" supply of goods: the determination of the place of supply for VAT purposes. In accordance with the general principle of Art. 7 para. 1 let. a VAT Act, the supply of a “Werklieferung” is deemed to have taken place where the contractual work is performed or where the goods are delivered. However, please note: If the additional service under the “Werklieferung” (e.g. assembly/installation) is merely an ancillary service to a supply of goods, the supply is deemed to have been made where the transport or dispatch begins.
Example: The Swabian tool manufacturer sends its fitter to Switzerland to replace a spare part for a customer in Winterthur (not a warranty case). The fitter brings the spare part with him from Germany. The tool manufacturer is registered for VAT in Switzerland.
The place of supply under the "contractual supply of goods" is the place where the contractual work is performed. The necessary assembly work is not merely ancillary to the "supply of the spare part". The tool manufacturer is the importer of the spare part and is subject to domestic tax on its delivery to the Swiss customer under the "contractual supply of goods".
In other (German-speaking) European countries, the term "werkvertragliche Lieferung" is not officially used in connection with VAT. In Austria and Germany, however, the term "Werklieferung" (“supply under a contract for work and labour”) is used and is defined as the treatment or processing of an object by an entrepreneur in which the entrepreneur uses materials that he has procured himself and which are not merely ingredients or ancillary items, Section 3 (4) VAT Act DE/AT. A Werklieferung is therefore a complex supply in the sense of a bundle of different supply elements (usually supply of goods and services elements in the sense of the European understanding) that are so closely linked that they are to be treated as a single supply for VAT purposes.
The existence of a supply under a contract for work and labour in this sense therefore requires that
The requirements for the existence of a “Werklieferung” are therefore much more narrowly defined than for the existence of a "werkvertragliche Lieferung".
From the point of view of Swiss VAT law, this is a “werkvertragliche Lieferung”, as the work of art is produced on behalf of and according to the wishes of the client. From the perspective of Austrian VAT law, it is not a “Werklieferung”, as the artist does not treat or process any goods belonging to his Austrian client.
The distinction between a “Werklieferung” and a simple supply of goods is initially used to determine the place of performance for VAT purposes. As in Switzerland, no special regulations apply to “Werklieferungen”, but rather the general principles for determining the place of supply in connection with supplies of goods.
The distinction is also important when it comes to the question of who is liable for VAT in each case. Neither in Germany nor in Austria does the reverse charge procedure currently apply to "simple" supplies of goods (reverse charge = reversal of the tax liability from the supplier to the recipient). The situation is different in the case of “Werklieferungen” by an entrepreneur based abroad to a service recipient who is also an entrepreneur. In these cases, the recipient is liable to pay VAT to the tax authorities if the place of supply is in Germany or Austria.
The “Montagelieferung” is not included in either the German or Austrian VAT Act. Rather, this is a term derived from the European VAT Directive. The VAT Directive forms the basis of the harmonised VAT system in the EU member states ("Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax", referred to in this article as the VAT Directive).
As the term "Montagelieferung" suggests, this is a supply where the goods are installed or assembled at the customer's premises by or on behalf of the supplier. In this case, the Directive states that the place of supply is the place where the installation or assembly is carried out, Art. 36 of the VAT Directive. Accordingly, the assembly supply differs from the German or Austrian “Werklieferung” in that it does not require the working or processing of a material provided by the customer. There is disagreement between the various member states as to which services make an assembly supply such a supply (specifically: does it require fixing at the supplier's premises or is it sufficient to assemble the goods and make them ready for use?) In German-speaking countries, the prevailing view seems to be that assembly requires the object of the supply to be attached or fixed to a specific location using technical aids.
Example: Belt AG, which is domiciled in Switzerland, specialises in the production of conveyor belts. It is commissioned by the German company Worldwide Shipping GmbH to supply a mobile conveyor belt. Belt AG will adapt and install the conveyor belt to the existing conditions on site in Germany, but without working or processing Worldwide Shipping GmbH's goods.
Similar, but completely different - or "same same but different". With VAT, the devil is in the detail. If you consider that the relevant circumstances usually involve the import of goods and that the input tax deduction is only ever granted to the "correct" importer, it becomes clear why errors still regularly creep into the VAT treatment of seemingly commonplace transactions, resulting in extensive offsetting and at least a large administrative burden in the event of an audit.
With appropriately trained staff and up-to-date work aids, risks can be minimised and the focus can be directed towards the essentials.
Value added tax and real estate is one of the perennial favourites in advisory services. The regulations are complex in detail and the amounts for individual transactions are comparatively high. In our blog, we present a series of relevant problem areas and discuss what to look out for. In this contribution, we deal with VAT issues in connection with dismantling and demolition costs (hereinafter "dismantling costs") and input VAT deduction.
From a VAT perspective, the commercial use of a property regularly passes through three "life phases":
From a VAT perspective, different and sometimes controversial questions arise in every phase of this lifecycle. In the recent past, the courts have ruled on issues relating in particular to the demolition of properties and the associated right to deduct input tax.
The taxable person can in principle deduct the VAT invoiced to and paid by them, the acquisition tax and the import tax as input tax within the scope of their business activity.
There is no entitlement to input tax deduction for supplies and the importation of goods that are used for the provision of services that are exempt from tax and for the taxation of which has not been opted.
This reservation is of particular relevance in connection with real estate, as the transfer and creation of rights in rem to real estate, services provided by condominium owners' associations to the condominium owners and the transfer of real estate and parts of real estate for use or utilisation are generally exempt from tax.
There are exceptions for certain uses (e.g. the letting of living rooms and bedrooms for the accommodation of guests and the letting of rooms in the hotel and catering industry or the letting of spaces not in public use for the parking of vehicles).
It is also possible to voluntarily subject the corresponding supplies to VAT (so-called option). However, the option is subject to the proviso that the item is not used or intended to be used by the recipient exclusively for residential purposes.
When deducting input tax in connection with demolition costs, a distinction must first be made as to whether the demolition costs were preceded by a change of ownership (i.e. the demolition is carried out by the purchaser of the property) or not (i.e. the demolition is carried out by the previous owner of the property).
The dismantling represents the final phase of the previous business use. The assessment of whether input tax is deductible in connection with the dismantling is based on the previous use for supplies that entitle input tax to be deducted or supplies that do not entitle input tax to be deducted. The intended future use and any associated change of use is not relevant.
In the opinion of the Federal Supreme Court, further differentiation is required here:
If the purchaser initiates the demolition of the property "immediately" after acquisition, he enters the first VAT-related life phase of the future property ("construction"). Accordingly, the right to deduct input tax depends on the future use of the property (to be constructed).
If the purchaser does not initiate the demolition of the property "immediately" after acquisition, but instead puts it to an interim use, it must be examined whether this interim use is to be regarded as an independent operating phase or as a "non-independent interim use".
In the case of an independent operating phase, the demolition costs are part of the last life cycle phase of the current use of the property and the right to deduct input tax is based on the previous use. In the case of non-independent interim use, on the other hand, the demolition costs are included in the first life cycle phase of the "construction" of the new property to be built.
Particularly in connection with interim use, it must be carefully examined whether this must be regarded as an independent operating phase or whether it merely represents non-independent interim use. However, the demarcation criteria are not very clear-cut and neither the administration nor the relevant case law offer any help here.
On the other hand, it is clear that forward-looking planning in connection with property transactions offers considerable potential for optimisation.
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8055 Zürich
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T +41 58 252 22 00
info@primetax.ch
Friesenbergstrasse 75
8055 Zürich
www.primetax.ch