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.

BACKGROUND

From a VAT perspective, the commercial use of a property regularly passes through three "life phases":

  1. Creation/acquisition
  2. Operation
  3. Dismantling or sale

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.

GENERAL INPUT TAX DEDUCTION 

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.

DISMANTLING COSTS AND INPUT TAX DEDUCTION

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).

DISMANTLING COSTS WITHOUT PRIOR CHANGE OF OWNERSHIP

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.

  • Example: Holzbau Müller AG owns a large area of land on the outskirts of Zurich with various tool sheds and buildings with wood-processing machinery. In future, Holzbau Müller AG intends to outsource production to timber construction companies in the Zurich hinterland and reduce its own machinery and vehicle fleet accordingly. Holzbau Müller AG intends to realise a large residential development on the site on the outskirts of Zurich.
  • The input tax in connection with the dismantling is fully deductible. The decisive factor for the assessment of the input tax deduction is not the planned future use (which would presumably not entitle to input tax deduction here), but the previous use in the context of the timber construction business.

DISMANTLING COSTS WITH PRIOR CHANGE OF OWNERSHIP

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).

  • Example: In order to realise its project, Holzbau Müller AG acquires a neighbouring property that was used by a garage owner. Holzbau Müller AG immediately demolishes the garage owner's premises and remediates the contaminated site.
  • The input tax in connection with the demolition and renovation expenses is not deductible. The decisive factor for the assessment of the input tax deduction is not the previous use (which presumably would have allowed input tax deduction here), but the future use as a residential development.

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.

  • Example: In order to realise its project, Holzbau Müller AG acquires another neighbouring plot of land. There is a haulage company on this site. As the haulage company will not be able to move into its new headquarters for another nine months, it concludes a fixed-term rental agreement (opted for taxation) with Holzbau Müller AG until its new headquarters are completed. After the haulage company has moved out, Holbau Müller AG has the company buildings demolished.
  • The input tax in connection with the demolition is (probably) not deductible. The assessment of the input tax deduction is not based on the previous use (opted letting), as this was only for a short transitional period and there-fore cannot be regarded as an independent operating phase. In this respect, the right to deduct input tax depends on the planned future use.

CONCLUSION

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.

The so-called "platform economy" refers to a popular business model that is based on an (online) platform bringing together providers of certain goods and services with customers. This business model is so popular and so "special" from a VAT perspective that legislators in Switzerland and abroad feel compelled to address the special features by amending their respective VAT law. In the EU, for example, specific regulations have applied to online marketplaces and platforms since 2021. In Switzerland, a corresponding new regulation will be introduced to the VAT Act on 1 January 2025. However, this will only affect supplies of goods that are brokered via online platforms. Services will (initially) not fall within the scope of the regulation. Against this background (and because the legal situation applicable until 1 January 2025 also applies to all supplies), administrative practice and case law from this area are still of interest - such as the interesting Federal Administrative Court ruling of 7 December 2023 (A-1573/2022).

BACKGROUND

In the case of supplies via online platforms, the question regularly arises from a VAT perspective as to whether the platform itself is deemed to be the VATable provider of the brokered supply (case 1) or whether, from a VAT perspective, it merely provides a brokerage service that is decoupled from the brokered supply (case 2).

In case 1, the brokered supply and its recipient are decisive for the VAT qualification of the supply provided by the platform. The remuneration of the recipient of the service constitutes the basis of assessment for VAT. In this constellation, consumers are often deemed to be the recipient of the supply (b2c), which leads to extended tax obligations for the platform, particuarly abroad.

In case 2, only the brokerage service itself forms the content of the broker’s supply; the commission charged to the supplier and/or the recipient of the brokered supply forms the basis for calculating the platform's turnover. If a fee is only charged to the suppler, the brokerage service of the platform is often provided to an entrepreneur (b2b).

In the opinion of the administration, the constellation in which the parties find themselves is largely determined by the external appearance and whether it is objectively clear from the circumstances as a whole that the platform merely acts as an intermediary and does not provide the supply itself.

JUDGEMENT OF THE FEDERAL ADMINISTRATIVE COURT OF
7. dezember (A-1573/2022)

The case in question concerned an intermediary platform for food deliveries. The platform was of the opinion that it qualified as a "food supplier" due to its public appearance. This was contested by the FTA, which considered the platform to be merely an intermediary that provided intermediary and delivery services taxable at the standard rate. The FTA based its qualification on, among other things, the general terms and conditions, which clearly stated that there was a direct service relationship between the restaurant and the customer for the meals themselves. In the view of the administration, this position was strengthened by the fact that the customer could not only select the dishes during the ordering process, but also the specific restaurant from which he wished to order.

As a result, the court ruled in favour of the platform and based its judgement largely on the customer's perception of the ordering process and afterwards ("user experience"). The platform had acted as a point of contact or counterparty for customers throughout the entire ordering process as well as during delivery and in the event of complaints and payment. Any ambiguities as to whether there was an intermediary relationship or a direct service relationship with the platform were "at the expense" of an intermediary service. If it is not clear from the circumstances that the platform is acting as an intermediary, it should be assumed in case of doubt that the platform itself is acting as the supplier.

CONCLUSION

It is remarkable how much importance the court attaches to the supposed "user experience", even if this - in the court's view - contradicts the explicit written documentation. It is not at all unusual for consumers not to take any in-depth knowledge of general terms and conditions, in the eyes of the court. It follows from this that the websites and order processing of corresponding platforms could be of great importance and must be included in a VAT assessment.

The judgement was appealed to the Federal Supreme Court. It therefore remains to be seen whether the decision will be upheld. For platforms that broker supplies of goods, the new regulation will create a certain degree of legal certainty from 1 January 2025. Platforms that broker services are required to keep an eye on developments - and to thoroughly review their current public perception.

Value added tax and real estate is one of the perennial favourites in VAT advisory services. The regulations are complex in detail and the amounts for individual transactions are comparatively high. In our blog, we present relevant problem areas in loose succession and discuss what to look out for. In the first part, we deal with VAT issues in connection with the transfer of real estate.

THREE POSSIBLE FORMS OF TRANSFER

There are basically three ways to account for the sale of a property for VAT purposes:

  1. The basic case provided for by law is the exempt supply in accordance with Art. 21 para. 2 no. 20 of the VAT Act
  2. As an alternative, there is in principle the possibility of a transfer as a voluntarily taxed ("opted") supply in accordance with Art. 22 para. 1 of the VAT Act
  3. Finally, under certain conditions, the parties may decide to apply the notification procedure in accordance with Art. 38 MWSTG in conjunction with Art. 104 MWSTV. Art. 104 MWSTV.

SALE OF A PROPERTY AS AN EXEMPT SUPPLY (ART. 21 PARA. 2 NO. 20 MWSTG)

The transfer as an exempt supply means that the sales transaction itself does not trigger VAT. As the supply itself is "non-taxable", the (taxable) seller cannot claim input tax deduction on the input taxburdened expenses in connection with the transaction.

If the (taxable) seller has used the property until the sale (in whole or in part) for purposes entitling him to deduct input tax, the sale as a taxexempt supply constitutes a "change of use" (old use: partially or fully entitling to deduct input tax, new use: not entitling to deduct input tax). Ac-cordingly, the seller must make an input tax adjustment due to own use in accordance with Art. 31 of the VAT Act.

  • Example 1:

    The taxable company Hans Muster AG in Walchwil holds a property as part of its business assets. The property houses the joinery of Hans Muster AG. In October 2014, Hans Muster AG had the roof of the property recovered. Hans Muster AG claimed the VAT invoiced for this as input tax. On 1 July 2024, Hans Muster AG sells the property to Müller Immo AG. The sale is to take place in accordance with the statutory base case as an exempt supply.

    Hans Muster AG previously used the property extensively for taxable purposes (carpentry). The sale as an exempt supply results in a change of use. Accordingly, Hans Muster AG must correct the input tax deduction in connection with the property. In this case, the input tax deduction in connection with the renovation of the roof is affected. The extent of the correction depends on the current value of the renovation. To determine the current value, the input tax amount is reduced by 5% on a straightline basis for each year that has elapsed for immovable property. The accounting treatment is not rele-vant. Accordingly, Hans Muster AG must correct the originally deducted input tax by 50% (5% * 10 years, the current year of sale is generally not taken into account when deter-mining the current value).

The purchaser acquires the property free of VAT. If the property is used for non-taxable purposes (e.g. as a retirement home), there is no risk of a change of use for the purchaser. On the other hand, the purchaser does not transfer any potential for de-taxation.

  • Example 2:

    Hans Muster AG includes the input tax adjustment to be made by it in the sales price. Müller Immo AG initially intended to demolish the business premises and build a modern residential property on the site. It is changing its plans to the effect that shops are now planned on the ground floor and offices on the first floor.

    In the case of the construction of a residential property, Müller Immo AG is interested in minimising the input tax burden in connection with the acquisition of the property. In the case of taxable use (shops and office space can be let/sold on an optin basis), the input tax burden plays a rather minor role, as Müller Immo AG is entitled to deduct input tax. The "hidden" VAT transferred from the input tax correction of Hans Muster AG, on the other hand, results in a definitive additional charge for Müller Immo AG.

If the contracting parties have not made any special agreements and VAT is not shown in the purchase contract, the sale is to be treated as a tax-exempt transaction.

OPTed SALE OF A PROPERTY (ART. 22 PARA. 1 NO. 20 MWSTG)

As a first alternative, the taxable seller of a property has the option of voluntarily subjecting the sale to VAT ("option"). The prerequisite for exercising this option is that the property is not used by the buyer exclusively for residential purposes. If the buyer acquires the property in order to sublet it for residential purposes, the option is possible, as the buyer himself does not intend to use the property exclusively for residential purposes.

The seller can also opt for only part of the sale of the property. When selling developed properties, the seller can claim input tax on the costs directly related to the sale in full or in part (depending on the option).

  • Example 3:

    The taxable company Hans Muster AG in Walchwil holds a property as part of its business assets. The property houses Hans Muster AG's joinery workshop. Above it is a penthouse with a view of Lake Zug. In October 2014, Hans Muster AG had all the windows in the property replaced. Hans Muster AG claimed the VAT invoiced for this as in-put tax insofar as the windows of the joinery were affected. On 1 July 2024, Hans Mus-ter AG sold the property to Müller Immo AG.

    Hans Muster has the option of selling the property as a whole on an optin basis, as Mül-ler Immo AG will not use the penthouse flat itself for residential purposes. By opting for VAT for the transfer, Hans Muster AG would not have to make an input tax adjustment in relation to the input tax claimed in connection with the renovation of the windows in the joinery area. Rather, there is a change of use with regard to the penthouse flat, which entitles Hans Muster AG to make a input tax deduction with regard to the input tax not claimed in connection with the renovation of the windows in the penthouse flat area Inso-far as Müller Immo AG continues the previous use of the penthouse flat, its opted trans-fer will result in an additional VAT charge for Müller Immo AG, which will presumably have an impact on the purchase price negotiations.

    There is also the possibility that Hans Muster AG merely opts for the sale of the joinery and transfers the penthouse flat as a taxexempt supply. In this case, Max Muster AG does not have to calculate either an own-consumption correction or a subsequent input tax deduction.

Formally, a sale with an option only requires that the VAT is shown separately in the purchase contract on the purchase price without the value of the land or that the declaration is made in the statement in sections 200/205.

TRANSFER OF THE PROPERTY IN THE NOTIFICATION PROCEDURE (ART. 38 PARA. 2 MWSTG IN CONJUNCTION WITH ART. 104 MWSTV)

When using the notification procedure, VAT is settled with the FTA by notification instead of payment. The notification procedure therefore offers the possibility of processing the transaction without the buyer having to finance the VAT. By using the notification procedure, the buyer assumes the seller's taxable base and the utilisation level entitling to input tax deduction for the transferred assets.

  • Example 4:

    The taxable company Hans Muster AG in Walchwil holds a property as part of its busi-ness assets. The property houses Hans Muster AG's joinery workshop. Above it is a penthouse with a view of Lake Zug. In October 2014, Hans Muster AG had all the windows in the property replaced. Hans Muster AG claimed the VAT invoiced for this as in-put tax insofar as the windows of the joinery were affected. On 1 July 2024, Hans Mus-ter AG sells the property to Müller Immo AG. The transfer is handled by means of a noti-fication procedure.

    Müller Immo AG takes the place of Hans Muster AG with regard to the property for VAT purposes, i.e. it takes over a property that was used in the taxable area with regard to the joinery and in the taxexempt area with regard to the penthouse. If it rents the penthouse to a business consultant in the future, it can claim a subsequent input tax deduction for the replacement of the windows in 2014 (50% of the original input VAT paid). The pre-requisite is that she can prove the extent to which VAT was originally invoiced and paid.

In connection with possible changes of use after the transfer in the notification procedure, proof of previous use by the seller is of central importance. It is the buyer's responsibility to provide this proof. He must ensure that he receives all input tax receipts relevant to a change of use, evidence of valueenhancing expenses or extensive renovations over the last 20 years and records of previous input tax corrections.

If the buyer is unable to provide this evidence, they run the risk of input tax corrections being calculated on the basis of the purchase price due to changes in use. In this case, the FTA assumes that the property has been used entirely within the taxable area to date.

  • Example 5:

    In example 4, Hans Muster AG is unable to provide any evidence of the history of the property due to a water ingress in its archive.

    If Müller Immo AG continues to use the penthouse for residential purposes, it would have to make an input tax adjustment due to a lack of evidence of the previous use. This is based on the purchase price with Hans Muster AG. If it rents the penthouse to a man-agement consultant in the future, it cannot claim a subsequent input tax deduction.

    Accordingly, the notification procedure should be used with caution in property transactions if there are uncertainties regarding the previous or future use and there are gaps in the documen-tation.

CONCLUSION

Even if the above summary of VAT structuring options in connection with real estate transactions is only an initial overview, it is clear that real estate transactions should also be thoroughly examined in advance from a VAT perspective in order to make optimum use of the structuring options available. We have summarised the various structuring options in simplified form below

 

     

 

Exempted supply

Taxed supply ("opted")

Notification procedure

Tax liability of the seller required?

No

Yes

Yes

Tax liability of the buyer required?

No

No

Yes

Note/application requi-red?

No

Yes

Yes

Is VAT due for pay-ment?

No

Yes

No

Does the seller possibly have to take into ac-count the correction of the input VAT?

No

No

No

Can the seller possibly claim subsequent input tax deduction?

No

Yes

No

Does the buyer possibly have to take into ac-count a correction of the input VAT?

No

Yes

Yes

Can the buyer possibly claim subsequent input tax deduction?

No

No

Yes

Is the VAT history of the property relevant?

No

No

Yes

 

 

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".