Tax-free capital gains are attractive for investors and entrepreneurs in Switzerland. However, what appears to be an advantage at first glance can turn out to be a tax trap. Under certain circumstances, capital gains can be classified as income - with significant tax and social security consequences. This article shows what shareholders and investors should be aware of.
Private capital gains are generally tax-free in Switzerland - a significant advantage for investors and entrepreneurs. However, a recent ruling by the Federal Supreme Court [1] highlights the com-plexity of distinguishing between tax-free capital gains and taxable income. This ambiguity can result in unexpected tax consequences under specific circumstances. The matter becomes par-ticularly complex when commercial securities trading or a self-employed activity is suspected. If a capital gain qualifies as taxable income, it may result in significant and often unanticipated income tax and social security contributions. This article highlights the main issues.
The realization of a tax-free capital gain preconditions the (profitable) sale of private assets. By contrast, gains from the sale of business assets are in any case subject to income tax and social security contributions.
The assumption of business assets presupposes the exercise of a self-employed activity. If no such activity is carried out, no business assets can be assumed against the will of the taxpayer, meaning that all assets held constitute private assets from which tax-free capital gains can be generated. If a taxable person – consciously or unconsciously – is self-employed, it must be determined on a case-by-case basis whether an asset is to be classified as private or business asset. This depends on the individual circumstances, whereby the so-called technical-economic function of the asset in question plays a central role. In this context, it should be noted that the holding and management of assets themselves – be it securities, real estate or other stores of value – could, under certain circumstances, constitute (part-time) self-employment. The intention to actually be self-employed is not decisive in this respect.
The term self-employment is not defined by law, but all income from a trade, business, liberal profession or other self-employed activity is subject to tax. In practice, the term is interpreted broadly. Accordingly, all profits from activities that go beyond the simple management of private assets are considered taxable income. This also includes capital gains from the sale or use of business assets.
The determination of whether a person is self-employed hinges on the specific circumstances of each individual case. The Federal Supreme Court takes the following indicators into account:
Each of these indicators may be sufficient together with others but may also be sufficient on their own to assume self-employment. The fact that typical elements of self-employment are not fulfilled in individual cases can be compensated for by other elements that are particularly pro-nounced. The individual aspects may not be considered in isolation and can also vary in intensi-ty. The decisive factor is that the activity as a whole is aimed at earning income.
The assessment of all the circumstances without a clear hierarchy of the listed indications makes it difficult to assess in individual cases whether or not self-employment is to be assumed. The fact that even a single indication can be sufficient if it is particularly pronounced shows that the hurdle for assuming self-employment is relatively low. This – of course – is particularly relevant when the activity is profitable.
The distinction between private and business assets is made according to the technical and eco-nomic function of the asset in question. This refers to the connection of the asset with a possi-ble self-employed activity.
A sufficiently close connection is generally deemed to exist if an asset is objectively recogniza-ble as being used for business purposes or actually serves the self-employed activity. The ques-tion is therefore whether an asset (e.g. a shareholding) serves to increase income or reduce expenses of the self-employed business activity. If a participation grants significant influence over a company in the same or a related industry as the owner's own company, this is consid-ered an indication that the participation qualifies as business asset. This assumption is in general confirmed, if the participation generates mandates for the owner's own company. This is the case, for example, with an architect who holds shares in real estate companies and acquires ar-chitectural contracts for his own architecting company from these companies.[2]
However, it is important to note that not only shareholdings in the same sector can qualify as business assets. Shareholdings outside the same sector can also be regarded as business as-sets if they are suitable for usefully expanding or supplementing the field of activity of the parent company or for diversifying business activities. In any case, the decisive factor is the intention of the person concerned to use the participation specifically to improve the operating result of their own company or its opportunities on the market.
Against this background, the Federal Supreme Court recently ruled [3] that self-employed lawyers are not prohibited from holding additional securities of their clients as private assets. The Feder-al Supreme Court thus protected the position of the taxpayer and upheld his appeal. In its rea-soning, the court stated that the lawyer's activities, repeated advice, investment activities and membership of the board of directors were not in themselves sufficient evidence to classify the shareholding as (self-employed) business activity. As long as the purpose of the participation is not to increase income or reduce expenses within the scope of the original gainful activity (in this case the activity as a lawyer), there is no room to assume that the participation is a business asset or to assume self-employment. Nevertheless, the qualification as business assets is not excluded, as the participation could also form part of commercial securities trading.
Under certain circumstances, the (profitable) sale of shares can be regarded as commercial se-curities trading and thus as self-employment. In practice, the following criteria are used for this purpose [4]:
In this context, reference should be made to a ruling by the Federal Supreme Court [5], in which it had to deal with the sale of a shareholding that was classified as commercial securities trading by the lower courts. Specifically, a person who was initially still working as an independent man-agement consultant acquired a stake in a holding company that held two subsidiaries operating in the packaging industry. These companies were in financial difficulties, which made restructuring measures necessary. Together with another business partner, the person concerned succeeded in restructuring the companies and then selling them at a profit. The responsible tax office and the Federal Tax Administration were of the opinion that this approach went beyond the scope of private asset management, meaning that the realized increase in value would constitute (subse-quent) remuneration for the intensive restructuring efforts and thus income from self-employment from an economic point of view. In this regard, the Federal Supreme Court stated that, from a tax perspective, owners of participations are not prohibited from attempting to in-crease the value of the participation by participating in the company. [6] In this specific case, there was therefore no basis for a subsequent reclassification of the capital gain as remuneration for work performed, meaning that the gain could be recognized as a tax-free capital gain.
Although the term "trader" is often associated with repeated purchases and sales, the single sale of an asset can also be regarded as self-employment under certain circumstances. From a tax perspective, it is questionable whether the single sale of an asset can lead to the assumption of self-employment as a trader.
According to the case law of the Federal Supreme Court, the mere one-off sale of an asset does not in principle protect against the assumption of self-employment. For example, the sale of a single property or the (partial) sale of a shareholding can lead to the assumption of (part time) self-employed. However, this requires that the asset in question was acquired as part of a planned, acquisition-oriented activity and managed with a view to a future profitable sale. A tax-free capital gain from the sale of an individual asset is therefore only possible if the sale can still be attributed to private asset management. This is invariably the case when a one-time oppor-tunity is taken - whereby the burden of proof lies with the taxpayer. As long as the threshold for self-employment is not exceeded, a certain asset management activity in relation to the asset to be sold should not be detrimental. However, the circumstances of the specific individual case must always be considered.
According to federal court rulings, if an occupation is primarily held as a form of employment, part-time self-employment may be considered in exceptional cases and under specific circum-stances. Indications in this regard include any external financing, risks taken or a particularly sys-tematic or planned approach. The proximity to the profession and the specialist knowledge used are also indications to be considered. The Federal Supreme Court has determined that the amount of profit made is of secondary importance.[7]
A current example is provided by the Federal Supreme Court [8]: In this instance, the revenue de-rived from the one-time sale of a share was classified as income from self-employment. The decisive factor was that the taxpayer was systematically and entrepreneurially involved in the project over a longer period of time, invested considerable financial resources, took entrepre-neurial risks and cooperated with an experienced business partner. Despite the lack of repetition of this activity, these circumstances were sufficient to assume a taxable gainful activity.
The distinction between tax-free capital gains and taxable income is complex in many cases and depends on various indicators. In order to realize a tax-free capital gain, it is important to careful-ly examine the relevant criteria and, if necessary, take measures in good time to avoid tax disad-vantages. Early and forward-looking planning is essential in view of the tax consequences of refusing the benefit of tax-free capital gains. This applies all the more as social security contribu-tions are due on the capital gain in addition to income tax.
[1] Cf. judgment FSC 9C_454/2023 of December 11, 2024.
[2] Cf. judgment FSC 2A.547/2004 of April 22, 2005.
[3] Cf. judgment FSC 9C_454/2023 of December 11, 2024.
[4] Cf. circular letter of the FTA no. 36, section 4.3.2.
[5] Cf. judgment FSC 2C_115/2012 and 2C_116/2012 of September 25, 2012.
[6] Cf. judgment FSC 2C_115/2012 and 2C_116/2012 of September 25, 2012 E. 2.5.3.
[7] See in particular.judgment FSC 9C_403/2023 of June 25, 2024 E. 5.5.
[8] See in particular. judgment FSC 9C_403/2023 of June 25, 2024.
The partially revised VAT Act has been in force since 1 January 2025. This article provides information on the current status as at mid-January 2025.
A so-called "supply chain fiction" (see illustration below) simulates a supply from the trader to the platform and from the platform to the customer for VAT purposes, see Art. 20a new VAT Act. The platform must therefore account to the FTA for VAT on sales to customers, provided that these are subject to domestic tax. Please note: The so-called mail order regulation for the delivery of low-value consignments of goods from abroad continues to apply, Art. 7 para. 3 let. b VAT Act. In fact, the new regulation should lead to a comprehensive tax liability for foreign trading platforms in Switzerland. However, domestic private sellers who occasionally sell goods via a trading platform, for example, are also affected: The trading platform will undoubtedly pass on the VAT it owes to the sellers.
In practice, numerous questions arise in connection with platform taxation. It is therefore all the more regrettable that at the time of writing this article, the FTA has not yet published any guidance on administrative practice.
Whereas today, in the case of travel abroad, the individual components of the trip must be broken down for VAT purposes and assessed individually according to their service content, in future the so-called place of supply principle will apply to all travel agency services, i.e. the travel agency's services (own and those charged on from third parties) will be deemed to have been uniformly provided at the registered office of the travel agency. Travel agency services are exempt from tax if they are provided abroad or if they would be exempt from tax on the basis of Article 23 of the VAT Act if they were provided by a person who is not a travel agency.
At the time of writing this article, the FTA has not yet published any information on administrative practice.
If a public authority expressly designates the funds it provides to the recipient as a subsidy or other contribution under public law, these funds are deemed to be a subsidy or other contribution under public law, Art. 18 para. 3 new VAT Act. Subsidies are deemed to be non-consideration that are not subject to VAT but require a reduction of the input tax deduction at the level of the subsidy recipient, Art. 18 para. 2 let. a in conjunction with Art. 33 VAT Act. Until the end of the finalisation period, the municipality has the option of designating funds to the recipient as a subsidy or other contribution under public law. Taxpayers who do not agree with the qualification as a subsidy will have to actively defend themselves against this.
VAT Info 05 "Subsidies and donations" has been revised accordingly, whereby the amendments are currently limited to editorial additions to the new provisions without providing further practical information.
The transfer of emission rights, certificates and attestations for emission reductions, etc. (separate from the supply of energy) are now generally subject to acquisition tax - regardless of the domicile of the seller. A letter (e) has been added to Art. 45 para. 1 VAT Act. The provision does not apply if the traded rights etc. fall under the tax exemption pursuant to Art. 21 para. 2 no. 19 let. e VAT Act. In particular, trading in derivatives on such rights, certificates and attestations is exempt from the tax.
Incorrectly invoiced domestic VAT is only deductible as input VAT if the recipient of the service can prove that the service provider has also invoiced and paid this domestic VAT.
Section 2.5 of VAT Info 14 "Supply tax" contains a list of the rights, certificates and attestations that fall within the scope of the amendment. These include in particular
Accounting period
In future, taxable persons whose annual turnover from taxable supplies does not exceed CHF 5,005,000 will have the option of settling VAT annually. The application of this method has no influence on the invoicing method. Authorisation for annual invoicing is granted on request and can be refused or revoked if the taxable person does not meet their invoicing and payment obligations or does so insufficiently, Art. 35 and 35a new VAT Act.
Taxpayers must make advance payments on their tax liability during the year (quarterly or half-yearly for taxpayers with a net tax rate). The instalments are determined and invoiced by the FTA, Art. 86 new VAT Act. The tax claim for the last tax period is decisive for determining the instalments. If it is not yet known, it will be estimated by the FTA. In the case of new taxpayers, the tax claim expected by the end of the first tax period is decisive. If the taxable person considers the instalments to be too high or too low, they can apply to the FTA for an adjustment of the instalments.
At the time of writing this article, the FTA has not yet published any information on administrative practice.
Fiscal representation
Taxable persons without a place of residence or business in Switzerland generally require a tax representative in Switzerland ("fiscal representative"). Administrative simplifications and cost savings are to be created here by dispensing with the requirement for a tax representative under certain conditions. The FTA may waive the requirement to appoint a representative in accordance with paragraph 1 if the fulfilment of procedural obligations by the taxable person and the swift implementation of this Act are guaranteed in another way, see Art. 67 para. 1 bis new VAT Act.
There is no indication in the law, ordinance or the corresponding messages as to how "the fulfilment of procedural obligations by the taxable person and the rapid implementation of this law can be ensured in other ways". In this respect, it remains to be seen whether the administration will comment in more detail. At the time of writing this article, the FTA has not yet published any information on administrative practice.
Even after the entry into force of the partially revised VAT Act, questions regarding its implementation by taxable persons remain unanswered. We are monitoring the development of administrative practice and will keep you informed of any developments here.
A AG is active in the procurement, holding, financing, operation, rental and leasing of aircraft. A AG is held by the company B. The owner of B is the C family.
In 2012, A AG acquired an aircraft and concluded an "Aircraft Management and Charter" agreement with D. In the agreement, A AG transferred the exclusive right to manage the aircraft and operate it vis-à-vis third parties to D.
All flights carried out with the aircraft were invoiced by the D. company. D retained a certain amount of the fees received as commission. D reimbursed the remaining amount to A AG as a rental payment. In detail, the agreement provided for the following:
The contract also stipulated that D had to obtain the prior consent of A AG for each charter flight. In addition, it would inform A AG of all flight enquiries from potential charter customers at A AG's request. A AG reserved the right to approve or reject any charter flight offered by D at its own discretion.
In 2012, the FTA confirmed A AG's input tax deduction with regard to import tax on the aircraft and domestic tax invoiced by D. The decision was based on a ruling request, which was based on the following utilisation forecast:
It later transpired that more than 50% of the actual use was for the private needs of A AG and related parties. As a result, the FTA denied the input tax deduction to the extent of the use for non-commercial purposes and qualified the structure in relation to the aircraft as abusive.
The main issue in dispute is whether input tax deduction is excluded if the aircraft is used for the private use of the beneficial owners (A AG and related parties).
9C_775/2023
In its earlier judgement (BGE 149 II 53), the Federal Supreme Court was guided by the practice of the FTA when determining the threshold above which private use of an aircraft is no longer considered part of a business activity. Accordingly, private use of up to 20 % is not harmful. If this value is exceeded, the entire private use of the aircraft by the beneficial owner and related parties falls outside the scope of VAT and does not entitle the beneficial owner to deduct input tax.
Both the lower court and the appellant are correct in assuming that A AG forms an entrepreneurial unit (in accordance with the principle of the unity of the company in BGE 142 II 488), which is also confirmed by the Federal Supreme Court in the present case. However, even if a business unit exists, input tax deduction is only possible to the extent of the business activity.
The appellant's activity raises the question of whether an input tax adjustment is necessary, even though the structure provides for the aircraft to be used exclusively for business purposes. The Federal Supreme Court answered in the affirmative, as the private use accounts for more than 20% of the total use and therefore does not fall within the scope of VAT. In this respect, in the court's opinion, there was never a right to claim input tax.
Aircraft holding structures are regularly the focus of VAT auditors. The judgement essentially confirms the practice of the FTA and its restrictive approach. The judgement goes beyond aircraft holding structures and taxable persons should always keep an eye on the proportion of "de facto" private use of these items in relevant constellations (e.g. holiday homes, vehicles, boats).
Completing the customs formalities causes a storm of enthusiasm for very few people. Too formalistic, too time-consuming - and especially if the goods are only brought to the country in question for a short time (e.g. as part of a trade fair), the temptation to dispense with the tedious formalities is great. However, it has been shown time and again that the proper completion of customs formalities can save the declarant a lot of trouble - and money. As in the case recently decided by the Federal Administrative Court (judgement of 19 November 2024, A-4028/2022). The subject of this judgement was the failure to open the temporary admission customs procedure for exhibits at a trade fair in Switzerland.
In accordance with the self-declaration principle, the customs declaration forms the basis of the customs assessment. High demands are placed on the diligence of the person obliged to declare. Persons subject to customs duties must inform themselves in advance about the customs obligation and the respective clearance procedures. They are responsible for the lawful and correct declaration of their goods movements and must declare the assessment.
If the goods are brought into the customs territory for temporary admission, the customs declaration for temporary admission (“ZAVV”) must be issued. This is a Swiss customs document that has no effect on customs formalities abroad. The customs office requires a security deposit for the ZAVV procedure. This is the amount that would have to be paid for definitive customs clearance.
The following basic requirements must be met for the temporary admission procedure to be utilised:
The intended use of the goods determines the admissibility of the temporary admission procedure and the required formalities. Common uses are, for example, exhibitions, tests, trials, sporting events or business materials. If the intended use, the user or the owner of the goods changes during the temporary admission, a new customs declaration is required.
As part of this procedure, import and export customs duties are assessed with a conditional payment obligation. If the temporary admission procedure is not completed correctly, the assessed duties become due unless the goods have been removed from the customs territory within the specified period and their identity can be proven.
The complainant had brought two self-designed and assembled motorhomes into Switzerland without a customs declaration in order to exhibit them at a trade fair. The Federal Customs Administration (now and hereinafter referred to as the Federal Office for Customs and Border Security, FOCBS) confiscated the vehicles and opened a criminal customs investigation against the complainant for failure to declare. The complainant argued, among other things, that the motorhomes were covered by the Istanbul Convention and could therefore be imported temporarily and informally duty-free. In any case, the conditions for duty exemption within the meaning of Art. 56 para. 3 of the Customs Act were fulfilled, as the motorhomes in question had left the country again.
The court points out that the relevant provisions of the Istanbul Convention are not only based on the object of the import itself ("means of transport"), but also on its intended use in the specific case ("for commercial or personal use"). In this context, "commercial use" exclusively includes means of "transport of persons for remuneration or for the commercial transport of goods for or without remuneration". This requirement is not met if the intended use is to exhibit at a trade fair. The motorhomes therefore fall under a different provision of the Istanbul Convention - which, however, does not provide for informal registration.
The opening of the scope of application of the duty exemption provisions asserted by the appellant was also not fulfilled. The prerequisite for this is that a customs procedure has been duly opened. This was not the case in the present case.
As a result, the Federal Administrative Court found that the customs and import tax debt was lawfully assessed against the taxpayer.
Failure to submit a customs declaration ultimately cost the complainant dearly. The conditions for temporary admission were probably met in the case in question. With little effort, the visit to the trade fair in Switzerland could have been processed under customs law without effectively incurring VAT and customs duties.
Influencers have established themselves as important players in digital marketing. Companies use them to communicate products and services to potential customers in a targeted manner. This raises important VAT issues for influencers as well as for their clients and cooperation partners. This article examines the key aspects from the perspective of influencers and the companies that use their services.
Influencers often receive monetary remuneration or benefits in kind in the form of products or services for their advertising activities. As soon as their taxable turnover (worldwide!) exceeds the threshold of CHF 100,000 per year, they are subject to VAT and must register with the Swiss Federal Tax Administration. This applies to remuneration for advertising services as well as the sale of own products.
One example: Influencer René from Zurich cooperates with fashion houses and hotels. He receives free overnight stays in return for advertising services on social media. According to Article 24 paragraph 3 of the VAT Act, this is considered a barter transaction: the market value of the hotel accommodation corresponds to the taxable remuneration for his advertising service. If an existing hotel bill is waived instead of a monetary payment, this is a "supply in lieu of payment" in accordance with Article 24 paragraph 5 of the VAT Act, whereby the originally agreed booking amount serves as the assessment basis.
Sponsored posts, affiliate income or subscription fees from followers must also be included in the taxable assessment basis.
Not only influencers themselves, but also their clients must be aware of the VAT consequences, particularly in cross-border business transactions. The place of performance for advertising services is determined in accordance with the recipient location principle. Companies that purchase services from foreign influencers should check whether the reverse charge procedure applies.
An example: A Swiss hotel commissions an influencer based in Germany to promote its resort. As the service is provided to an entrepreneur based in Switzerland, the tax liability is shifted to the Swiss hotel. The hotel must pay the VAT itself as part of the reverse charge procedure and declare it accordingly in the VAT statement.
Influencers who sell their own products via online stores are subject to the rules for deliveries. The place of delivery is determined by the place where the goods are located at the time the power of disposal is obtained. As a rule, this is the place of residence of the influencer. If deliveries are made to foreign customers, the question arises as to whether a tax-exempt export delivery exists or whether the influencer must register for tax purposes in the recipient country. The b2c and OSS or mail order regulations in Switzerland could also be briefly discussed here.
Both influencers and the companies that work with them should carefully examine the VAT consequences of their business models. Compliance with the applicable regulations can minimize tax risks and avoid unexpected additional claims. In any case, it is advisable to seek sound tax advice.
Under certain conditions, entrepreneurs have the option of applying for a refund of the invoiced VAT amounts as part of the input tax refund procedure. This procedure only applies in cases where registration for VAT purposes is not required in the country concerned.
Companies domiciled abroad that incur expenses in Switzerland for their business activities can reclaim the VAT paid on these expenses as input tax. This is the case if the following conditions in particular are met cumulatively:
The entitlement to a tax refund is maintained if the applicant only provides services in Switzerland for which he is exempt from tax liability and does not waive this liability.
The entitlement to a tax refund also remains in force if the applicant distributes or has distributed free brochures or promotional items for his products in Switzerland or, as a guarantor, carries out warranty work on his products himself or has it carried out by third parties.
However, caution is required with regard to warranty services. Compensation is not possible if the subsequent repair or replacement delivery is (partially) charged on to the end customer by the applicant. In this case, the foreign applicant makes a domestic delivery, which may trigger a tax liability and registration obligation.
There is no entitlement to a tax refund on invoices for advance payments and payments on account. This requires a definitive final invoice after receipt of the service.
Example:
Sport AG, based in Germany, will be exhibiting at the Zug Trade Fair in Switzerland in June 2025. The trade fair organizer issued an advance payment invoice to Sport AG in November 2024. As the Zug trade fair will not take place until June 2025, the service has not yet been received in November. Only after the trade fair has been held can the taxes paid on the invoice on account be claimed in the 2025 remuneration period (to be submitted in the following year 2026) when the final invoice is submitted.
A representative resident in Switzerland must be appointed to submit the application. The application must be submitted using the official FTA form (no. 1222 and 1223) and must be accompanied by the original receipts. The application must be submitted between January 1 and June 30 of the following year in which the costs were incurred. If this deadline is missed, the input tax can no longer be claimed.
Refund procedures are always quite formalistic and involve a certain amount of effort. In an EU comparison, however, Switzerland still performs relatively well in terms of the effort required to obtain a refund of VAT paid in Switzerland as a foreign company. Even for comparatively small sums, it is worthwhile entering the refund procedure.
In our blog post in July 2024 on the ruling of the Federal Administrative Court of June 18, 2024 (file number A-5793/2022), we dealt with the VAT classification of remuneration for intermediaries in the financial sector. The case was referred to the Federal Supreme Court. In its decision, the Federal Supreme Court followed the lower court and confirmed that the disputed transaction fees ("brokerage fees") for the "execution" constituted remuneration for an ancillary service. The main service is taxable asset management. The fee for execution is therefore also subject to VAT in the case decided.
Refresher: As an asset manager, the taxpayer received two types of compensation for her activities under an asset management agreement. On the one hand, she was paid brokerage fees by the banks paid by clients, and on the other hand, she received a monthly management fee. It was disputed whether the brokerage fees and the external asset management fees were remuneration for a tax-exempt brokerage service or a taxable asset management service.
The taxpayer was of the opinion that it provided brokerage services with the execution in accordance with administrative practice "of the SFTA". Failure to apply this administrative practice would constitute a breach of the constitutionally guaranteed protection of legitimate expectations.
The Federal Administrative Court took the view that the taxpayer's execution service should be regarded as ancillary to the main service of investment advice or asset management, as this service would not make sense on its own.
9C_439/2024 of March 7, 2025
The Federal Supreme Court confirmed the view of the lower courts: Although the taxpayer uses the term "brokerage fee" for its activity as an asset manager, "brokerage fees" are usually used in connection with securities transactions and are not paid as remuneration for exempt brokerage services. The mere designation as a "brokerage fee" in the asset management agreement is not decisive.
Although the taxpayer is causally involved in the purchase or sale of securities, it does not carry out the securities transaction on the market itself but instructs the banks to do so for it. This means that there are no separate services or a majority of services. The "execution service" goes hand in hand with asset management and is so closely linked to the main service that it also shares its VAT fate.
Execution services provided within the scope of asset management mandates are to be regarded as ancillary services subject to VAT. An ancillary service does not fulfil a separate purpose for the client but must enable him to use the main service under optimal conditions. The remuneration paid for the ancillary service, the so-called transaction fee, is therefore taxable.
In brokerage transactions, it is crucial to clarify exactly which service is attributable to which party. In the present case, the regulatory activity associated with the brokerage fee is not attributable to the intermediary, but to the executing bank. The Federal Supreme Court clarifies that the recommendations contained in administrative ordinances cannot be transferred to each individual case without examination. The terms used are not decisive. Rather, a careful analysis is decisive in order to recognize which specific service is hidden behind a term such as "brokerage fee" and how its character is to be classified. At the same time, the title or general term of an administrative regulation can restrict its applicability. This raises the question of the extent to which such practical instructions can actually provide guidance to taxpayers.
Culture is an essential part of our society - worthy of support, but also in need of support. This area of conflict gives rise to the need for financial support in the form of donations and subsidies. Both are considered non-taxable items within the meaning of the VAT Act, but differ in their tax treatment: while subsidies result in a reduction in input tax (Art. 33 para. 2 VAT Act), donations have no effect in this respect (Art. 33 para. 1 VAT Act). The exact distinction is therefore of considerable practical relevance. A recent ruling by the Federal Administrative Court (A-2765/2022, decision appealed to the Federal Supreme Court) deals with the question of whether funds that a foundation passes on from previously received subsidies are in turn to be qualified as a subsidy or a donation.
A-GmbH is active in film production and receives funding for this from a foundation under private law, which, however, primarily pursues public purposes. In this respect, the foundation has replaced the film promotion program operated by the City and Canton of Zurich itself. For its part, the foundation receives subsidies from the canton and city of Zurich. As part of an audit, the FTA qualified the subsidies paid out by the foundation as subsidies and assessed an additional tax claim due to the failure to reduce input tax. The foundation appealed against this.
Subsidies and donations differ from each other in several respects. In the case of both subsidies and donations, the beneficiary does not provide a specific service in return.
In contrast to a donation, however, a subsidy is accompanied by a "behavioral commitment" that serves a purpose in the public interest.
A donation is made on a voluntary basis, whereas a subsidy is granted on a legal basis. When subsidies are passed on, the intermediate recipient is also obliged to pass them on or the final beneficiary has a legal claim to at least part of the subsidy.
In the present case, the court therefore had to clarify the question of whether the foundation passed on the funds with the mere intention of benefiting the complainant, with the right of the complainant to dispose of the funds as it sees fit (donation) - or with a clear purpose that goes beyond the mere intention of benefiting the complainant, which would mean that a subsidy could be assumed.
A-2765/2022
In its decision, the ruling essentially focuses on the fact that the foundation should continue the former sovereign task of film promotion in a private law form. This means that the earmarking to which the public subsidies to the foundation are subject also extends to the subsidies that the foundation pays to filmmakers. This earmarking for the recipients of the contributions was reflected, on the one hand, in the purpose of the foundation and, on the other hand, in the principles of the contributions granted by the foundation, which were subject to a conditional repayment obligation. As a result, the court deduced that this earmarking for the recipients of the contributions in turn led to a restriction of the independence or freedom of use of the funds by the foundation - which would argue for a qualification as a subsidy (in effect: passed on to the recipients of the contributions) and against the assumption of a donation. This view is supported by the fact that the foundation is free to select the recipients of contributions, but not to decide whether to award grants. On the other hand, it is completely harmless that when the funds are awarded to the foundation, it is completely unknown to which recipients the foundation will ultimately award these funds.
In addition, the court emphasized that, based on the specific circumstances, it was always clear to the recipients that the foundation was merely a vehicle of the canton and city to implement their promotion of filmmaking - and that the foundation therefore passed on subsidies.
Since January 1, 2025, funds provided by public authorities have been considered a subsidy within the meaning of Art. 18 para. 2 of the VAT Act if they are expressly designated as such to the recipients. With the ruling of the Federal Administrative Court, the concept of a subsidy appears to have been extended to payments by private-law organizations - as long as it was only "recognizable" to the recipient that the funds ultimately came from the public sector and otherwise qualified as a subsidy. In future, artists will therefore have to check very carefully from whom they receive funding - and whether this may trigger an input tax correction. It remains to be seen whether the ruling will be upheld by the Federal Supreme Court.
As a general consumption tax, value added tax (VAT) is designed to burden non-business, i.e. private, consumption. Within the business sphere, on the other hand, there is a fundamental right to deduct input tax in order to avoid multiple tax burdens. However, this principle reaches its limits if structures are used solely to obtain a tax advantage that is not provided for by law. Such abusive structures are often the subject of case law, particularly in connection with luxury goods such as private jets, yachts or vacation properties.
A recent ruling by the Federal Administrative Court (FAC) dated January 8, 2025 (A-1146/2023) deals with such a topic. It deals with the misuse of VAT regulations in connection with a vacation property.
A-1146/2023
A._______ AG was acquired by its sole shareholder in 2017 and held a single vacation property. The company was registered as a company subject to VAT, which entitled it to claim input tax deduction for extensive renovation costs. At the same time, it rented out the property exclusively to the sole shareholder, with this rental being subject to VAT at the special rate for accommodation services.
Following a VAT inspection by the Swiss Federal Tax Administration (FTA) in 2021, the company was retroactively deleted from the register of VAT-liable persons. The FTA justified this with the existence of tax avoidance, as the chosen structure was solely aimed at generating an input tax deduction that the sole shareholder could not have claimed privately. The FAC confirmed this assessment.
According to the established practice of the FAC and the Federal Supreme Court, three elements are decisive for the affirmation of tax avoidance:
As all three criteria were met, the tax avoidance was affirmed and the company's tax liability was retroactively revoked.
It is interesting to compare this with the judgments A-4190/2020 and A-4195/2020 of 15 December 2021. In these cases, no tax avoidance was assumed, whereby, in the opinion of the court, the fact that no input tax deductions were claimed played a role. Instead, the companies invoiced using the net VAT rate method, which is why no significant tax savings were made. The third condition, the effective element, which requires a significant tax saving, was therefore missing. In the current case, however, the chosen structure led to a significant input tax surplus, which resulted from the high renovation costs for which the company claimed the input tax deduction. At the same time, the rental income from the exclusive letting to the sole shareholder was only taxed at the reduced special rate for accommodation services. As a result, the input tax claimed significantly exceeded the VAT owed, which the court classified as tax abuse, meaning that tax avoidance was confirmed.
One noteworthy point of the ruling is the distribution of the burden of proof. In principle, it is up to the tax authority to prove the existence of an abusive arrangement. However, the FAC states that there is a natural presumption of a peculiar arrangement as soon as significant elements speak in favour of tax optimization. In practice, this leads to a de facto reversal of the burden of proof, as taxpayers must rebut the natural presumption of tax avoidance.
In the current case, A._______ AG was unable to provide sufficient business reasons for its structure. The court emphasized that economic or business motives of the company itself are decisive - not the entrepreneurial activities of the sole shareholder. This did not invalidate the natural presumption. This approach shows that taxpayers who use similar structures must provide well-documented economic reasons for their choice in order to avoid a tax adjustment.
Das Urteil unterstreicht erneut, dass das Halten von Ferienimmobilien über Gesellschaften zwar nicht per se unzulässig ist, jedoch ein wirtschaftlicher Zweck nachgewiesen werden muss, der über die reine Steuerersparnis hinausgeht. Dabei scheinen Verwaltung und Bundesverwaltungsgericht strenge Massstäbe anzulegen.
In such situations, companies and taxpayers should therefore carefully examine whether the business reason for the chosen structure can be adequately justified. If this is not the case, there is a risk of a tax correction with considerable financial consequences. The decision has been referred to the Federal Supreme Court and it remains to be seen whether it will stand.
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www.primetax.ch