The world of e-commerce has seen unprecedented expansion in recent years, with digital platforms and online commerce revolutionising the global market. However, with this growth comes complex challenges, particularly with regard to value added tax (VAT) and its application to cross-border trans-actions. The dynamic nature of e-commerce, combined with international business practices, has led to a complex legal landscape that poses new challenges for participants in e-commerce. The follow-ing article deals primarily with VAT issues in b2c trade (i.e. sales to consumers, as opposed to busi-nesses). This is a rough initial overview. The relevant regulations are complex and should therefore be examined on a case-by-case basis based on the specific business model. 

e-Commerce in the EU

No thresholds for third countries!

Anyone who provides b2b deliveries (and certain services) in the EU without having a fixed place of business in the EU may be liable to pay tax immediately (i.e. from the first euro of turnover). Special schemes for small businesses usually only apply to companies based in an EU member state.

  • Example: A Swiss retailer sells Pokémon trading cards via its webshop from a fulfilment cen-tre in Germany. Customers are private individuals in Germany, Austria and the Netherlands. Turnover amounts to EUR 3,700 p.a. in the first year.
  • Solution: The retailer must register in Germany for VAT purposes.

Settling VAT in 27 member states: the One Stop Shop

In the case of b2c deliveries to different member states (so-called distance sales) from an EU ware-house (duty paid goods), the VAT rate of the country in which the warehouse is located initially ap-plies.

  • Example: as above.
  • Solution: The retailer must pay VAT on his deliveries in Germany. He owes VAT at the rate ap-plicable in Germany for all deliveries, including deliveries to customers in Austria and the Netherlands.

If the turnover from such distance sales exceeds EUR 10,000 per year across the EU, the VAT rate of the country in which the customer is based applies. Until recently, e-commerce traders may have had to register for VAT separately in all member states in order to fulfil their reporting and accounting obligations. Since 2021, it has been possible for them to fulfil their reporting and accounting obliga-tions via a central registration, the so-called One Stop Shop ("OSS").

  • Example: as above, but the retailer now has a turnover of EUR 17,000 p.a., of which EUR 6,000 is generated in Austria and EUR 5,000 in the Netherlands.

  • Solution: The retailer must pay VAT in Germany on its deliveries to customers in Germany. Here he owes VAT at the VAT rate applicable in Germany. For deliveries to customers in Aus-tria and the Netherlands, he owes VAT at the rate applicable in Austria and the Netherlands re-spectively. The retailer has the option of registering for VAT in Austria and the Netherlands. Alternatively, they can register for the OSS in Germany in order to fulfil their reporting and ac-counting obligations in Austria and the Netherlands. Customers in other member states can later also be registered and invoiced via the OSS.

Delivering goods from a third country to the EU: the Import One Stop Shop

Like distance sales within the EU, distance sales from a third country are also subject to VAT at the VAT rate applicable in the customer's country. Up to a goods value of EUR 150, retailers have the option of processing the corresponding distance sales via the so-called Import One Stop Shop (IOSS).

If the application of the IOSS is waived, a special regulation may apply, according to which the import tax is collected by the freight forwarder directly from the respective customer. Freight forwarders regularly charge their customers additionally for their customs clearance services - so that this proce-dure appears expensive and less transparent from the customer's point of view.

Finally, it is possible for distance sellers to register in the respective member states of their custom-ers and invoice their deliveries to the national tax authorities themselves.

  • Example: A Swiss retailer sells Pokémon trading cards from stock in Switzerland to consum-ers in Austria, Germany and the Netherlands via its webshop. The value of the individual con-signments is between EUR 45 and EUR 85. 
  • Solution: The retailer can register for the IOSS (for this purpose, he must appoint a repre-sentative based in the EU). Deliveries of goods are exempt from import tax, and national VAT in Austria, Germany and the Netherlands is reported and settled via the IOSS.

    Alternatively, the retailer has the option of applying the "special regulations for the import of consignments with a material value of no more than 150 euros" (as described in the corre-sponding Section 21a of the German VAT Act). In this case, the freight forwarder collects the tax (and any handling surcharges) directly from the customer.

    Thirdly, Swiss traders still have the option of registering for VAT in Austria, Germany and the Netherlands and settling VAT locally.

Platform taxation

Special rules have applied in the EU for several years to distance sales that are initiated or processed via so-called "electronic interfaces", provided that the goods are dispatched within the EU and the seller itself is based in a third country. An electronic interface is, for example, an electronic market-place or an electronic platform that enables the buyer and seller to come into contact, resulting in the delivery of goods to the recipient of the service (e.g. Amazon Marketplace, ebay or Alibaba).

  • Example: A Swiss retailer sells Pokémon trading cards from a warehouse in Germany via an online marketplace operated by a third party. The customers are private individuals in Germa-ny, Austria and the Netherlands. 

In cases where an electronic interface is included in the supply chain in this sense, a so-called "supply chain fiction" occurs: While there is actually only a single sales transaction, two supplies are fictitious for VAT purposes by assuming a (first) supply from the trader to the operator of the electronic inter-face and a (second) supply from the operator of the electronic interface to the final purchaser. The fictitious supply from the online trader not established in the Community to the operator of the elec-tronic interface is exempt from VAT. The supply of the electronic interface to the end customer fol-lows the general principles for distance sales.

  • Example: as before.
  • Solution: This results in a fictitious supply chain, in which a supply from the Swiss retailer to the operator of the online marketplace and from the operator of the online marketplace to the end customer is fictitious. The supply from the Swiss retailer to the operator of the online marketplace is exempt from VAT. The supply from the operator of the online marketplace to the end customer is subject to VAT at the VAT rate applicable in the country in which the end customer is based.

CONCLUSION

Dropshipping and other modern sales channels offer tantalising opportunities to tap into new sources of income. It is essential to consider the (value-added) tax consequences right from the start. If you wait until your business has reached a critical size, you will be chasing your own past failures. With a clever setup, the business can be scaled without major risks and the administra-tive effort can be kept within reasonable limits.

In a recent ruling (BGer 9C_154/2023 of 3 January 2024), the Fed-eral Supreme Court dealt with the admissibility of input tax deduction for acquisition tax (VAT on services purchased from abroad) for con-sultancy services in connection with the sale of shareholdings. Ac-cordingly, a person liable for VAT in Switzerland is only entitled to claim the declared purchase tax as input tax if the corresponding ser-vices were provided in a period in which the taxable person was al-ready liable for VAT (registered). The taxable person is responsible for providing proof of this.

Facts of the case

A AG, which was only entered in the VAT register as a taxable person on 1 April 2019, planned the sale of shares in two companies. To this end, it commissioned several foreign service pro-viders to prepare, plan and implement the sale, who were to provide advice in the areas of in-vestment, auditing, tax and law, depending on their expertise. The consultancy agreements be-tween A AG and the consultants were concluded in 2014 and 2018 respectively, i.e. before A AG was registered as a company subject to VAT. The project was then completed in May 2019 with the successful sale of the shares. All consultants invoiced their services after 1 April 2019, whereby A AG, which was now liable for VAT, duly declared the purchase tax and reclaimed the resulting VAT amount as input tax. None of these purchased services were capitalised during the duration of the project from 2014 to May 2019.

Following an examination, the FTA largely refused the input tax deduction, arguing that the tax-payer could only deduct the input tax on services that (regardless of the invoice date) had actu-ally been provided after it was entered in the VAT register on 1 April 2019 (cut-off date). Due to a lack of detailed information on which consultant provided which services at exactly what time, the FTA methodically assumed an even, linear purchase of services according to the duration of the contracts (pro rata temporis). The input tax deduction was therefore only permitted to the extent that the services were provided after the reference date according to this proportional distribution of fees.

CONSIDERATIONS OF THE FEDERAL SUPREME COURT

Requirement of an existing tax liability while receiving services

The position of the FTA, according to which the right to deduct input tax can only cover supplies that were received during the period of existing tax liability, was not (or no longer) disputed in the proceedings before the Federal Supreme Court.

Proof of the date on which the service was received

The court therefore focussed on the question of proving when the advisory services were actu-ally provided. In accordance with the principle that facts justifying and increasing the tax must be proven by the tax authority, and facts reducing and excluding the tax must be proven by the per-son liable to pay the tax, the court held that A AG had the burden of proof that the services from the consultancy agreements concluded long before the VAT registration were only provided after entry in the register of taxable persons. A AG had failed to provide this evidence. In the absence of any other evidence, the approach of the FTA, which assumed a continuous provision of services over the period since the conclusion of the contract and accordingly divided the fees "pro rata temporis", was not objectionable in the present case.

Subsequent input tax deduction

In the sense of a contingent application, A AG had argued that it was entitled to a claim for sub-sequent input tax deduction. This is the possibility of correcting the input tax deduction (pro rata) at a later point in time than the purchase of the service if the conditions for the input tax deduc-tion subsequently materialise, Art. 32 VAT Act.

The input tax deduction on goods and services put to use can be corrected if they are still avail-able and have a current value at the time when the conditions for input tax deduction have mate-rialised, Art. 72 para. 2 sentence 1 VATO.

However, there is a legal presumption that services in the areas of consulting, accounting, re-cruitment, management and advertising are already consumed and no longer available at the time they are purchased, Art. 72 para. 2 sentence 2 VATO. In the opinion of the court, the standard codifies, to a certain extent, an obligation for immediate depreciation, solely in relation to the VAT treatment. The accounting treatment (which Art. 70 para. 1 sentence 1 of the VAT Ordi-nance generally prescribes) is cancelled out by this special standard.  

CONCLUSION

The generally generous regulations on input tax deduction in Switzerland can sometimes lead to a certain carelessness in the area of VAT. The judgement makes it clear that early VAT registra-tion of the parties involved in connection with potential transactions should always be carefully checked and is usually advisable.

The judgement is not only relevant in the context of transactions, but also, for example, in the case of business start-ups, especially if a mandatory tax liability is not necessarily assumed at the beginning of the entrepreneurial activity.

In addition, the judgement shows that particular attention should be paid to documenting the timing of the provision of services - for example, through detailed invoicing or the documentation of certain "project milestones".

Under the current VAT Act, the right to deduct input VAT is broadly defined. Accordingly, the taxable person can in principle deduct the in- put VAT invoiced to him and paid by him within the scope of his busi- ness activity, Art. 28 para. 1 MWSTG. However, one of the require- ments is that the input tax was incurred as part of the taxable person's "entrepreneurial activity". Naturally, this raises the question of how to distinguish between entrepreneurial and non-entrepreneurial activities.

In its judgement 9C_651/ 2022, the Federal Supreme Court dealt with this distinction between the entrepreneurial and non- entrepreneurial spheres and the corresponding consequences for input VAT deduction.

BACKGROUND

The complainant in the underlying dispute was an association whose purpose was to support and promote ecclesiastical and charitable causes in Switzerland and abroad. In order to achieve its purpose, the association organised Christian musicals. Approximately 70% of the musicals were financed by donations and no admission fees were charged.

In addition to the income from donations, the association also generated income from services, such as the sale of food in connection with the musicals, the sale of other items (e.g. books; T- shirts), from publicity services (sponsoring) in favour of companies and accommodation services. On the occasion of a VAT inspection, the FTA denied the association an input VAT deduction in connection with the organisation of the musicals. The association appealed against this.

DECISION OF THE FEDERAL SUPREME COURT
The Federal Supreme Court refers to its previous case law, according to which a corporate body can also maintain a non-entrepreneurial sphere in addition to the entrepreneurial sphere. However, account must be taken of the fact that the company is, in principle, an economic unit to which all activities related to the entrepreneurial activity must be allocated.

A possible non-entrepreneurial sphere is therefore characterised by the fact that the business unit in question either does not generate any income from services or at least does not generate such income in a sustainable manner. An independent non-entrepreneurial sphere can therefore only be assumed if the separation can be made sufficiently clear - whether this is due to a separate activity that is clearly recognisable to the outside world or a clear purpose that differs from that of the entrepreneurial activity. If this is not the case, the principle of the "unity of the company" remains with a single, entrepreneurial sphere.

In the present case, the main purpose of the organisation of the Christian musicals is the non-profit or idealistic activity of the association - and not the sale of food, books or T-shirts or the provision of publicity and accommodation services. With the musicals, the association therefore pursues ide- alistic purposes and not the generation of income. In this respect, entrepreneurial activity is there- fore lacking.

This means that the idealistic purpose of the musical performances can be clearly distinguished from that of the association's entrepreneurial activities (sale of food, etc.) and a separation can be made between the rather small entrepreneurial sphere and the significantly larger non-entrepre- neurial sphere. The close factual link between the entrepreneurial and non-entrepreneurial activi- ties is irrelevant: The association does not perform the musicals in order to promote its entrepre- neurial activities, but merely uses the (ideally motivated) performances as an opportunity to carry out a subordinate entrepreneurial activity.

CONCLUSION

As a result, the Federal Supreme Court confirms its previous case law on the distinction between the entrepreneurial and non-entrepreneurial sphere. The argumentation appears to be driven to a significant extent by considerations of achieving "unfair" tax advantages by using a comparatively subordinate business area in order to be able to deduct input tax incurred in the supposedly non- entrepreneurial sphere.

BACKGROUND
From a VAT perspective, subsidies and donations constitute so-called "non-consideration". This means that they are considered to be flows of funds that are not matched by any supply. As non-consideration, subsidies and donations are equally not subject to VAT. In contrast, subsidies and donations differ at the level of input tax deduction. While donations do not lead to a reduction in input tax, subsidies trigger the requirement for a corresponding reduction in input tax. The distinction between donations and subsidies is made on the one hand according to whether the donor is a "subject of public law" (hereinafter "public authority"). Corresponding grants that are not paid by a public authority are generally considered donations. However, if the grant is made by a public authority, it cannot automatically be concluded that it is a subsidy, as public authorities should also be able to "donate" within the meaning of VAT. Recently, the Federal Supreme Court once again had to deal with the question of the distinction between a donation and a subsidy.
BG DECISION 9C_609/2022
Facts of the case
In the present Federal Supreme Court case 9C_609/2022, the taxpayer, which is organised under private law and whose statutory purpose is to provide teaching, research and service infrastructures for conventional medicine, intended to build a campus on a plot of land owned by the Canton of Zurich. For this construction project, the taxpayer received an investment amount of CHF 9,000,000 from the Lottery Fund of the Canton of Zurich.

As part of an inspection, the FTA took the view that the taxpayer had wrongly qualified the investment contribution from the lottery fund as a donation and not as a subsidy and had therefore wrongly not amended its input tax deduction. In particular, the FTA claimed that the contribution was based on a legal basis and was also earmarked for a specific purpose, namely as an investment contribution for the construction of the musculoskeletal research and development centre, the activities of which could be considered to be in the public interest. The taxpayer argued that the funds should be recognised as a donation and not as a subsidy.

Accordingly, it was disputed in this case whether the lottery fund had made an input tax-effective subsidy or an input tax-neutral donation.

Decision of the Federal Supreme Court
In general, the Federal Supreme Court states that a (tax-neutral) donation exists if a voluntary donation is made with the intention of enriching the recipient without the expectation of a supply in the VAT sense in return. The person receiving the donation can largely dispose of the funds as they see fit, which does not rule out the possibility of donations being made linked to a specific project. In principle, the beneficiary is not subject to any legally standardised duty of conduct. This means that, in principle, public authorities can also make donations.

The Federal Supreme Court examines three key criteria for distinguishing a subsidy from a donation:

    1. Are the funds provided by a public authority?
    2. Is the allocation of funds based on a legal basis?
    3. Are the funds awarded without any expectation of a specific supply in return?
As a result, it denied this, as "the expectations on the part of the Canton of Zurich inevitably [had] to go further, as considerable public funds are at stake, which must be used economically and in a targeted manner". The canton of Zurich could "not be accused of having donated the funds and leaving their use largely to the taxpayer". However, this excludes a donation, as "in the case of a donation [...] it is to be expected that it is made free of a legally enforceable behavioural obligation, apart from the fact that the funds are used appropriately."
CONCLUSION
The judgement of the Federal Supreme Court raises questions. At the crucial points, the court relies more on conjecture than on substantiating its decisive considerations. In particular, the distinction between a "project-related donation" and a subsidy is unclear (although the court expressly recognises that there can be project-related donations). Taxable persons who receive donations that could be considered to be made by a public authority in the broadest sense should review their position from a VAT perspective. If such funds are newly awarded, the corresponding contracts should be checked to see whether they are sufficiently clearly formulated to be able to clearly distinguish between a donation and a subsidy. Subsidies are also to be part of the partial revision of the VAT Act. It remains to be seen whether this will create more clarity.
Entrepreneurs in Switzerland are usually confronted with a pragmatic tax administration in the area of value-added tax, which orients its actions to the meaning and purpose of a regulation rather than to purely formalistic requirements. Three recent examples from German case law show that entrepreneurs can regularly hope for less understanding in the case of formal errors as soon as they move (for VAT purposes) within the EU area. Germany offers itself as a strong trading partner for Swiss companies as an example. The countries to the east and south of the EU in particular are by no means less strict than their immediate neighbour to the north. In view of an average tax rate in the EU of over 20%, the consequences can be serious.
  • VAT "correct" invoices and right to deduct input tax

The first case presented here as an example (Federal Fiscal Court, ruling of 7 July 2022, V R 33/20) dealt with the question of retroactive invoice adjustment. It should be noted that according to European law, the right to deduct input tax arises at the time the service is rendered and in the amount of the tax owed - that the tax has also been paid, is not decisive (unlike in Switzerland). However, the prerequisite for exercising the right to deduct input tax is the possession of a proper invoice.

According to the German tax authorities and case law, an invoice can only be corrected retrospectively if the document to be corrected has five essential characteristics (issuer of the invoice, recipient of the service, description of the service, remuneration and the amount paid). The invoice must contain a separate value-added tax (VAT). If one of these elements is missing, the invoice does not qualify as an invoice for VAT purposes. Until now, it was not detrimental to the qualification as an invoice for VAT purposes if the content of the features was incorrect (the invoice was then not correct, but at least represented an invoice document that could also be corrected retroactively). In the case decided here, the supplying party mistakenly came to the conclusion that the recipient of the service was resident abroad and that the service was therefore not subject to VAT in Germany. Accordingly, it invoiced with "VAT 0%". In the course of a tax audit, it later turned out that the recipient of the service was resident in Germany and should have been invoiced with German VAT.

In the opinion of the court, however, the document was so faulty due to the lack of separately stated tax that it no longer constituted an invoice and the correction had no retroactive effect on the input tax deduction.

  • Proof of the conditions for a taxexempt intra-Community supply I

In an older ruling (Federal Fiscal Court, ruling of 22 July 2015, V R 23/14), the Federal Fiscal Court (Bundesfinanzhof, BFH) deals with the conditions under which it is possible to prove that goods in the context of an exempt intra- Community supply have actually left the territory of one Member State and entered the territory of another Member State. And again, the issue was the question of a correct or sufficient determination of place.

In the underlying case, the customer had confirmed this in writing to the supplier upon collection of the goods: "The vehicle will be transported by me to the destination country Spain on ...". However, this was not sufficiently precise for the German tax authorities because the specific (!) destination was not named and could not be equated with the company address of the buyer without further ado.

Once again, the BFH agrees with the opinion of the administration - and thus denies the tax exemption for the intra-Community supply. And again, the BFH emphasises that the question of good faith protection did not arise in the present case, as formal completeness was lacking (protection could be granted to all goods). If the good faith in the content of the accuracy).

  • Proof of the conditions of a taxexempt intra-Community supply II

In the last example briefly presented here (BFH, ruling of 19 March 2015, V R 14/14), the BFH also deals with the conditions for proving the conditions of intra- Community supplies. And once again, the decision is to the disadvantage of the taxable person.

The issue in dispute was whether the plaintiff had succeeded in proving that all the conditions for an intra- Community supply had been met. In particular, the question was whether a witness statement was suitable as evidence to confirm the existence of the conditions for intra-Community deliveries at the time of delivery. The lower court denied this and considered the evidence not to have been provided.

The BFH shares this view. The legislator has determined t h a t the proof is to be provided by corresponding bookkeeping and documentary evidence. Only in blatantly exceptional cases, in which formal proof cannot be provided or cannot reasonably be provided, does the principle of proportionality allow for a reduction of the tax burden. The BFH confirmed the refusal of tax exemption for the intra- community supply in question. Since such an exceptional case was not recognised in the present case, the BFH confirmed the refusal of tax exemption for the intra- community supply in question.

  • CONCLUSION

The examples make it clear that the German tax authorities (but also tax authorities in other EU member states) place high demands on entrepreneurs in terms of formal requirements. The The "good" news for entrepreneurs is that they can (but also must) take countermeasures, because the formal requirements are regularly clearly specified in the relevant laws. It is therefore advisable for entrepreneurs who trade in the EU and provide or receive services to establish internal processes, controls and/or checklists at an early stage to ensure that, for example, incoming invoices are (also) checked for formal correctness and that all necessary proof is available in the prescribed form for their own, possibly taxexempt, services.

Based on the assessment of new facts and as a result of the decision of the Federal Administra- tive Court of 10 August 2021 (A 2587/2020), the FTA has published an initial practice statement on vouchers. The practice determination and the resulting adjustments in VAT Info 04, Tax ob- ject, 07, Tax assessment and tax rates, as well as VAT sector Info 06, Retail trade and 10, Public and tourist transport companies, are still a draft. However, the draft in any case shows the direc- tion, the SFTA are headed. Essentially, the practice definition introduces a distinction between service vouchers and value vouchers, each of which is treated differently for VAT purposes. In addition to announcing a definition of the voucher categories, the FTA has inserted various exam- ples in the revision of VAT Info 04, Tax Object, in particular, which are intended to help taxpayers distinguish between so called “supply vouchers” and “value vouchers”.
  • JUDGMENT OF THE FEDERAL ADMINISTRATIVE COURT OF 10 AUGUST 2023 (A- 2587/2020)

In the case under review, the taxpayer had sold vouchers for outdoor events. With regard to VAT, the taxpayer had followed the practice of the FTA applicable until then, according to which the sale of a voucher was irrelevant for VAT purposes, largely irrespective of its concrete form. Only the redemption of the voucher led to an exchange of services relevant for VAT purposes, which was taxable according to the usual rules. The FTA now claimed that the VAT consequences differed depending on the design of the vouchers and that a distinction had to be made between service and value vouchers. In fact, the customer had a choice of the following types of voucher:

  • In the first variant, the customer received a voucher after payment, which he could use at a later date to obtain any service from the complainant for the amount stated on the voucher. This type of voucher was to be seen as a so-called "value voucher" in accordance with established practice as a means of payment, the issue of which was irrelevant for VAT and which only led to a VAT-relevant turnover when it was redeemed.
  • In the second variant, the customer received a voucher with which he could participate in the activity mentioned on the voucher at a later date at an already determined location in exchange for redeeming the voucher. This type of voucher qualified as a so-called "supply voucher", where the expenditure already led to a VAT-relevant turnover. Since the supply was already determined (or at least determinable), the payment was an advance payment that was taxable under the VAT Act at the time of receipt.

    The Federal Administrative Court followed the FTA's argumentation in this regard, with the conse- quence that a distinction must now be made between the two types of voucher for the correct handling of VAT. In particular, a distinction must also be made as to which of the parties, the re- cipient of the supply or the supplier, bears the price risk. If it is borne by the supplier, it is a supply voucher. If, on the other hand, the price risk is borne by the recipient of the supply, this indicates the existence of a value voucher.

    DEFINITIONS, VALUE ADDED TAX CONSEQUENCES AND EXAMPLES

    Against this background, the FTA published its draft practice in this regard on 31 August 2023. According to this, the following definitions and VAT consequences apply:

    According to the definition of the FTA, vouchers generally entitle the holder to purchase services and goods. They can be issued in physical or electronic form. It should be noted that the FTA ex- plicitly does not consider discount vouchers or tickets for public transport, admission tickets or stamps to be vouchers in the aforementioned sense.

    In accordance with the above-mentioned ruling of the Federal Administrative Court, a distinction must now be made between value vouchers and supply vouchers, whereby the FTA does not take up the distinction made by the Federal Administrative Court regarding the question of who bears the price risk. Rather, a voucher is considered to be of value if only a value is stated on the voucher or electronically deposited and with which any supply can be obtained in the amount of the face value. Vouchers are to be treated as means of payment, since no supply is rendered and (technically) no payment is received upon sale; there is only an exchange of funds. Therefore, payments for value vouchers are not included in the assessment basis for VAT. However, it is a condition that no tax rate is shown on the voucher (otherwise the principle "tax invoiced is tax owed" applies).

    It is interesting to note at this point that in the case of commercial trading in value vouchers, an exchange of supplies is nevertheless assumed: in this case, there is exempt turnover in the area of monetary and capital transactions. The FTA does not provide a justification for this reclassifica- tion of the VAT consequences depending on whether it is traded commercially or not as well as an answer to the question as to which trade in vouchers by companies could qualify as non-com- mercial. One thing is certain: if there is no remuneration, the corresponding flow of funds has no influence on the entitlement to deduct input tax. If, on the other hand, there are exempt transac- tions, the input tax deduction must be corrected accordingly. The question is therefore quite rele- vant in individual cases and it cannot be ruled out that courts will have to clarify it.

    A supply voucher, on the other hand, exists if a specific or determinable supply is specified on the voucher. The customer can choose when the voucher can be redeemed, but not for which sup- ply. The presence of a value indication on the voucher does not change this qualification.

    A supply is deemed to be identified or identifiable if the supplier can already determine where and in what amount the tax is due and settled when the voucher is sold due to the nature of the sup- ply. In this case, the receipt of the purchase price shall be deemed to be an advance payment and the tax shall become due at the time of receipt. If the voucher is not redeemed or expires, a correction is possible as a reduction of the consideration if the consideration is refunded or the recipient of the supply waives the refund of the consideration paid.

    In the case of the supply voucher, the FTA points out that the tax is to be settled and paid in the period in which the consideration is received. With regard to the applicable tax rate, it should be noted against the background of the tax rate changes coming into force on 1 January 2024 that the tax rate applicable at the time of the provision of the supply is decisive (cf. also our blog post from 09.08.2023). Since the customer alone decides when the voucher is redeemed, especially in the case of vouchers with a longer validity period, the service provider cannot know when he will finally provide the service in the case of a validity period spanning several years. In such cases, the tax rate at the time of sale is likely to be decisive as an exception, and a possible subsequent correction is unnecessary.

    The FTA also lists various examples. It should be emphasised that the FTA also assumes that the voucher is a supply voucher if the customer can redeem the voucher for a supply other than the one specified on the voucher in accordance with the GTC of the supplier (and without any fur- ther reference on the voucher). In contrast, a value voucher is to be assumed if the voucher itself optionally allows redemption for a different supply. In this way, the FTA presumably wants to pre- vent suppliers from being able to easily turn all vouchers they sell into supply vouchers on the ba- sis of clauses in the general terms and conditions, in order to possibly circumvent the input tax adjustment that is necessary if value vouchers are sold commercially (see the comments above).

    PARALELLES TO THE REGULATION IN THE EU

    In the EU, a distinction is made between single-purpose and multi-purpose vouchers. A single- purpose voucher exists if the applicable tax rate can be determined at the time of issue because the supply to be provided upon redemption is already determined or determinable. The tax liabil- ity for single-purpose vouchers arises at the time of issue. Multi-purpose vouchers, on the other hand, are vouchers for which the consideration is not yet clearly determined and therefore the tax rate ultimately to be applied is not yet determined at the time of issue. Consequently, the tax lia- bility only arises on the occasion of redemption. Although the terms and definitions are not congruent, parallels can be seen. For example, the value voucher corresponds largely to the multi-purpose voucher, the supply voucher to the single- purpose voucher. However, the extent to which there is actually congruence in practice or in the assessment of individual cases remains to be seen.
    Die Begriffe und Definitionen sind zwar nicht deckungsgleich, dennoch sind die Parallelen zu erkennen. So entspricht der Wertgutschein wohl weitgehend dem Mehrzweck-Gutschein, der Leistungsgutschein dem Einzweck-Gutschein. Inwieweit hier aber in der Praxis bzw. anlässlich der Beurteilung von einzelnen Fällen tatsächlich Deckungsgleichheit besteht, wird sich noch erweisen müssen.

    • CONCLUSION
  • It is gratifying that the FTA has now published its reassessment of the practice on vouchers in the wake of the Federal Administrative Court's ruling and is working with examples. Nevertheless, one or two questions remain unanswered and it remains to be seen how the rules developed by the FTA will prove themselves in practice. Providers of vouchers are recommended to familiarise them- selves with them in order to ensure compliance. In individual cases, it may be advisable to seek the advice of an expert.

    The start of the new tax year 2024 is accompanied by many changes. We are happy to provide you with an overview of important changes.

    VAT and Customs

    We would like to take this opportunity to remind you that at the end of 2022, the Swiss people ap-proved an increase in VAT rates with effect from January 1, 2024. The background to the increase is the financing of the “AHV” (“Alters- und Hinterlassenenversicherung”, “Old-age and survivors' insur-ance”).

    As a result, the following VAT rates will apply from January 1, 2024:

     

    So far

    New

    Standard rate

    7.70%

    8.10%

    Reduced rate

    2.50%

    2.60%

    Special rate for accommodation services

    3.70%

    3.80%

    If you require further details and explanations about the changes to the VAT rates, please refer to our blog post published in August 2023. Further information and sample forms for invoicing from 2024 can also be found on the SFTA website.

    Individual taxes in regards Direct Federal Tax

    There will be no significant changes to taxes for private individuals in 2024. Various deductions will be adjusted slightly upwards due to inflation:

    Deduction

    2023

    2024

    Training and further education

    12’700

    12’900

    Double income deduction

    13’600

    13’900

    Child deduction

    6’600

    6’700

    Support deduction

    6’600

    6’700

    Married status deduction

    2’700

    2’800

    Deduction from the tax amount per child

    255

    259

    Pillar 3a (with pension fund)

    7’056

    7’056

    Pillar 3a (without pension fund)

    35’280

    35’280

    Childcare deduction

    25’000

    25’500

    Higher interest on arrears and remuneration

    Anyone who pays direct federal tax in advance will now receive a refund interest rate of 1.25% (2023: 0%). However, anyone who misses the payment deadline must now pay 4.75% interest on arrears (2023: 4%).

    Introduction of equalization and compensation interest at cantonal and municipal tax level

    We would also like to draw your attention to the fact that certain cantons are reintroducing equaliza-tion interest as of 2024. For example, the canton of Zug is introducing equalization interest of 2%. In principle, this interest will apply to all outstanding amounts against the respective tax administration as at 1.1.2024. The right to establish deviating rules at the different cantonal levels is reserved. We therefore recommend that you contact your tax authority to clarify your situation with regard to any unpaid tax debts as at 1.1.2024.

    Both individuals and legal entities are affected by equalization interest.

    Due to the renewed introduction of equalization interest, the cantons will introduce compensatory interest as a counterpart.

    Changes in the canton of Zurich

    Since 2016, the canton of Zurich has dropped a total of 13 places in terms of profit tax rates com-pared to other cantons. Current tax burden data shows that the canton of Zurich now has the highest ordinary profit and capital tax burdens in the country. In response to this, the Department of Finance has taken measures to make the canton more attractive again. The plan is to ease the burden on companies slightly, while shareholders will be asked to pay more. Specifically, a reduction in the sim-ple profit tax rate from 7 to 6 percent is planned. This would reduce the overall tax burden from 19.7% to 18.2% (direct federal tax, state and municipal taxes in the city of Zurich, calculated on pre-tax prof-it). In addition, the taxation of dividends from qualified participations is to be increased from 50% to 60%.

    Although these changes are planned, their implementation is not scheduled until 2025.

    In our last article, we took a closer look at the social security subordination rules for cross-border activities and the resulting problems. It must always be considered that, in addition to the social security perspective, the tax perspective must also be examined. The applicable double taxation agreements (DTAs), the supplementary agreements or mutual agreements and the separate cantonal special agreements with the border states must be taken into account.

    We would like to take this opportunity to remind you that at the end of 2022, the Swiss people ap-proved an increase in VAT rates with effect from January 1, 2024. The background to the increase is the financing of the “AHV” (“Alters- und Hinterlassenenversicherung”, “Old-age and survivors' insur-ance”) place of work principle, according to which the country of employment can tax income from employment if the work is actually physically performed in that country. If certain working days in cross-border employment relationships are no longer physically performed at the employer's registered office in the country of activity, but in the home office in the country of residence, this can lead to a different allocation of the right to tax salaries.

    For the example of an an international weekly resident with residence and family domicile abroad and place of work in Switzerland, this means that Switzerland may tax the Swiss working days based on the place of work principle. However, each individual working day performed in the home office at the foreign place of residence is subject to tax abroad and must be exempt from tax in Switzerland accordingly. If the home office activity abroad reaches a certain level, it must be examined whether the foreign country of residence has the exclusive right to tax the employment income as a result of the application of the so-called "assembler's clause" in accordance with Art. 15 para. 2 of the respective DTA. This special provision applies if the employee spends a total of less than 183 calendar days in Switzerland (working days including weekends and holidays) and the remuneration is not paid by an employer in Switzerland or a permanent establishment of the foreign employer located there. If the conditions are met cumulatively, Switzerland loses its right of taxation as the place of work.

    Another exception to taxation at the place of work can be found in the taxation of international weekly residentFor example, a new consultation agreement on the application of Art. 15 para. 4 DTA Germany was concluded with Germany on 6 April 2023. According to this agreement, the provisions of this article will also apply to "senior executives" with residence and family domicile abroad and place of work in Switzerland, this means that Switzerland may tax the Swiss working days based on the place of work principle. However, each individual working day performed in the home office at the foreign place of residence is subject to tax abroad and must be exempt from tax in Switzerland accordingly. If the home office activity abroad reaches a certain level, it must be examined whether the foreign country of residence has the exclusive right to tax the employment income as a result of the application of the so-called "assembler's clause" in accordance with Art. 15 para. 2 of the respective DTA. This special provision applies if the employee spends a total of less than 183 calendar days in Switzerland (working days including weekends and holidays) and the remuneration is not paid by an employer in Switzerland or a permanent establishment of the foreign employer located there. If the conditions are met cumulatively, Switzerland loses its right of taxation as the place of work.

    So far New Standard rate 7.70% 8.10% Reduced rate 2.50% 2.60% Special rate for accommodation services 3.70% 3.80% of cross-border commuters. As in the area of social security, various special consultation agreements and regulations with countries bordering Switzerland had to be observed from a tax perspective due to the COVID-19 pandemic until recently. Although these have since ceased to apply, the increase in home office work as a result of the pandemic has provided an important impetus. Against this backdrop and the fact that employees increasingly want to work from their place of residence, various new regulations have recently been concluded with neighboring countries in the area of taxation of cross-border commuters.

    Individual taxes in regards Direct Federal Tax There will be no significant changes to taxes for private individuals in 2024. Various deductions will be adjusted slightly upwards due to inflation:

    Higher interest on arrears and remuneration Anyone who pays direct federal tax in advance will now receive a refund interest rate of 1.25% (2023: 0%). However, anyone who misses the payment deadline must now pay 4.75% interest on arrears (2023: 4%).

    Introduction of equalization and compensation interest at cantonal and municipal tax level We would also like to draw your attention to the fact that certain cantons are reintroducing equaliza-tion interest as of 2024. For example, the canton of Zug is introducing equalization interest of 2%. In principle, this interest will apply to all outstanding amounts against the respective tax administration as at 1.1.2024. The right to establish deviating rules at the different cantonal levels is reserved. We therefore recommend that you contact your tax authority to clarify your situation with regard to any unpaid tax debts as at 1.1.2024. Both individuals and legal entities are affected by equalization interest. Due to the renewed introduction of equalization interest, the cantons will introduce compensatory interest as a counterpart.

    Changes in the canton of Zurich Since 2016, the canton of Zurich has dropped a total of 13 places in terms of profit tax rates com-pared to other cantons. Current tax burden data shows that the canton of Zurich now has the highest ordinary profit and capital tax burdens in the country. In response to this, the Department of Finance has taken measures to make the canton more attractive again. The plan is to ease the burden on companies slightly, while shareholders will be asked to pay more. Specifically, a reduction in the sim-ple profit tax rate from 7 to 6 percent is planned. This would reduce the overall tax burden from 19.7% to 18.2% (direct federal tax, state and municipal taxes in the city of Zurich, calculated on pre-tax prof-it). In addition, the taxation of dividends from qualified participations is to be increased from 50% to 60%. Although these changes are planned, their implementation is not scheduled until 2025.

    In the area of the coordination of national social security systems, in the case of a substantial activity in the country of residence within the EU/EFTA/CH, the insurance status can change from the employer country to the country of residence, provided that a substantial activity is carried out in the latter. This mainly occurs in cross-border constellations where, in addition to a work activity on the employer's premises, a home office activity is carried out in the country of residence.

    Until the outbreak of the COVID-19 pandemic resp. the lockdown on 11 March 2020, a workload of 25% of the total activity on average was considered to be a substantial activity. Thus, up to a maximum of 24.9% of the total activity could be performed in the home office without a change of insurance status.

    Due to the special situation in connection with the coronavirus, a flexible application of the subordination regulations was agreed within the EU/EFTA and in relation to Switzerland, according to which the insurance subordination should not change due to the pandemic-related restrictions. Thus, a person is considered to be employed in the country of employment (and thus subject to the social security system there) even if he or she is physically unable to perform his or her work there and must perform 100% of the working days in the country of residence in the home office. In principle, an A1 certificate was not required in such circumstances. Within the EU/EFTA/CH-States this flexible regulation was extended until 30 June 2023.

    According to the old regulation before the lockdown, in the case of a 100% workload, a home office activity of 2 days (40%) would lead to a change of social security status to the country of residence and the employer would subsequently be liable for social security contributions in the employee's country of residence and for the payment of the corresponding social security contributions. An A1 certificate confirming the applicable social security legislation would also have to be applied for. Under the flexible application regime during the COVID-19 pandemic, however, there would be no change in social security status despite performing more than 25% of substantial work in the country of residence and no need to apply for an A1 form would arise.

    In order to continue a facilitation of social security subordination after 30 June 2023, Switzerland and certain EU and EFTA states have signed a multilateral agreement. The agreement provides that persons working in the state in which their employer's registered office is located may perform up to 50% cross-border telework (maximum 49.9% of working time) in the state of residence without the subordination for social insurance changing from the state of the employer's registered office to the state of residence.

    In order for the agreement to apply to their employees, Swiss employers must apply for an A1 certificate (maximum validity 3 years, renewable) from their OASI compensation fund via the ALPS platform (Applicable Legislation Portal Switzerland). The same applies to foreign employers whose Swiss employees wish to work from their home office. They must apply for an A1 certificate from the competent foreign authority.

    This exception is only applicable to situations involving two states that have signed the agreement. In the case of home office in a state that has not signed the multilateral framework agreement, or for an employer based in a state that has not acceded to the agreement, the ordinary rules and procedures applied before the pandemic will apply again as of 1 July 2023 (materiality threshold of 25% of the activity, need to apply for an A1 certificate). The agreement is also not applicable if, in addition to teleworking in the country of residence, the employee carries out other activities there, such as visiting customers, or has an employment relationship in another EU/EFTA state.

    It should be noted that the above regulations only apply to the area of social security. The tax perspective must be examined separately and based on the respective applicable double taxation agreements, the supplementary agreements or memorandums of understanding, as well as the separate cantonal special agreements with the border states. A more in-depth discussion of the tax approach will be addressed in the next blog post. It should already be mentioned that a new mutual agreement has entered into force with France on 1 January 2023. A new cross-border commuter agreement and an amendment protocol also entered into force with Italy on 17 July 2023. In relation to Germany, the new consultation agreement of 6 April 2023 concerning "senior employees" must be taken into account.

    Blockchain-based applications are becoming increasingly popular. At the same time, there is still uncer-tainty about the VAT treatment of relevant technology-specific transactions, such as the validation or verifi-cation activities of so-called validators. In a recent ruling, the Federal Administrative Court (FAC) takes a position on this for the first time.
    BACKGROUND

    The legal dispute to be decided by the FAC concerned validation and verification activities in the blockchain networks Polkadot (with the native token "DOT") and Kusama (with the native token "KSM"). The taxpayer performed validation and verification activities in the aforementioned block-chain networks, which are based on the proof-of-stake concept, using software and hardware as a so-called "validator". For its activities as a validator, the taxpayer received so-called block rewards newly created by the protocol as well as a share of the transaction fees spent by the senders.

    A VAT audit by the Federal Tax Administration (FTA) resulted in a claim for additional taxes in connec-tion with these activities.

    Die ESTV begründete die Steueraufrechnungen damit, dass die Validierungs- resp. Verifizierungstätigkeiten der Steuerpflichtigen zusammen eine steuerbare elektronische Dienstleistung nach dem Empfängerortsprinzip darstellten, wenn die Steuerpflichtige neben dem Block-Reward auch eine Transaktionsgebühr erhält, welche vom Versender resp. von den Versendern mit Sitz im Inland für eine bestimmte Transaktion über das Netzwerk bezahlt wird. Diesfalls bestünde ein steuerbares Leistungsverhältnis zwischen dem Versender als Leistungsempfänger und der Steuerpflichtigen als Leistungserbringerin, welches der Inlandsteuer zum Normalsatz unterliege. Das Entgelt für die Validierungs- resp. Verifizierungstätigkeiten bemesse sich am Block-Reward und der Transaktionsgebühr.

    Considerations of the FAC

    The FAC's reasoning for the ruling expresses itself on some fundamental questions.

    Network and sender as separate recipients of the services of the validators

    The FAC first addresses the question of the recipient of the services provided by the validators.

    It states that validators in the blockchain network at issue here, on the one hand, provide services for which the network itself is to be regarded as the service recipient. This is justified, among other things, by the fact that the validators can (at least theoretically) also create blocks that do not contain any transactions. For the creation of such empty blocks, the validators also received the correspond-ing reward offered by the network (E 3.4.2.2).

    On the other hand, according to the court, the activities of the validators directly benefited the send-ers and they were therefore to be regarded as recipients of services. The court thus contradicts the opinion of the FTA, according to which only the senders are to be considered as service recipients.

    Decentralised networks not recipients of supplies within the meaning of VAT

    The court then addresses the question of whether a network company behind the network is the actual recipient of the supplies to the network.

    Bei den beiden hier betroffenen Netzwerken handelt es sich nach Ansicht des BVG um «echte» dezentrale Netzwerke, in denen die Protokollgesellschaft keine alleinige Verfügungsmacht habe. An der alleinigen Verfügungsmacht fehle es, soweit alle Änderungen am Protokoll per Stake-gewichteter Abstimmung unter den Netzwerkteilnehmern beschlossen werden und die jeweilige Protokollgesellschaft selbst nicht über genügend Token verfüge, um Protokoll-Änderungen gegen den Willen der übrigen Netzwerkteilnehmer durchsetzen zu können (E 3.4.2.3). Es sei unstrittig, dass bei Leistungen, die ausschliesslich an ein dezentrales Blockchain-Netzwerk als solches erbracht werden, mangels zuordenbarem Leistungsempfänger keine Leistungen im mehrwertsteuerrechtlichen Sinn gegeben sein können (E 3.2). Diese Tätigkeiten fielen demnach nicht in den Anwendungsbereich der Schweizer Mehrwertsteuer.

    Thus, only the transaction processing was to be assigned to the sender of a transaction as the ser-vice recipient (E 3.4.3.4).

    Transaction processing = taxable service subject to the place-of-receipt principle

    In the court's view, this transaction processing constituted a fundamentally taxable service subject to the place-of-recipient principle, for which the validator received the transaction fee (E 3.5.3). However, this did not change the qualification of the block rewards (allocated by the protocol) as non-remuneration (E 3.4.4).

    CONCLUSION

    The ruling brings clarity regarding the basic VAT treatment of certain activities of validators.

    Im Detail unerörtert (da nicht streitgegenständlich) bleiben aber beispielsweise Fragen im Zusammenhang mit der Bemessungsgrundlage in Bezug auf die Transaktionsgebühren für die Leistungen der Validatoren.

    It should also be noted that the ruling, by its very nature, dealt with a specific set of facts in a specif-ic environment. As two applications are rarely identical in the blockchain world, it is imperative to thoroughly analyse the relevant facts and examine where any deviations or parallels to the case de-cided here exist.

    Last but not least, it remains to be seen whether the ruling will be appealed to the Federal Supreme Court.

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