The VAT Treatment of Barter Transactions

In principle, supplies provided by taxable persons in Switzerland for consideration are subject to Swiss value added tax (VAT) unless these supplies are exempted from tax or zero rated.

Consideration is the asset value that the supply recipient spends to receive a supply. If the supply recipient settles the provider's claim other than through monetary payment (e.g. by providing a supply himself), the consideration is measured according to the amount that is thereby settled. This means that both contracting partners have to post in their accounting the full value of their own supply (as an expense) and the full value of the supply received in return (as income). Both contracting partners pay tax on the total value of the supply rendered by the other contracting partner at the applicable tax rate. This is the case, for example, if an IT company is contracted to set up the IT infrastructure at an accountancy service provider and in return the accountancy firm prepares the accounting for this IT company (further explanations of this example below in the text).

Special features of clearing transactions

In barter transactions, both contracting parties are at the same time the provider and the recipient of the supply. Insofar as tax liability exists, each must pay tax in full on the supply rendered to him (as remuneration for his own supply).

The special feature of clearing transactions is also that the consideration of the buyer takes place other than through monetary payment (e.g. provision of a counter-performance, so-called perfor-mance in lieu of payment). If the service and the consideration are of the same (market) value, this means that no money flows between the two parties. If the value of the service and the consideration differs, then a cash flow takes place despite offsetting, but to a reduced extent (payment of the dif-ference).

Bei Tauschverhältnissen gilt jeweils der Marktwert (z.B. Listenpreis) jeder Leistung als Entgelt für die andere Leistung. Entspricht der Marktwert der Leistungen des IT-Unternehmens beispielsweise CHF 10 000.– (exkl. MWST), so gilt dieser Wert als Entgelt für die vom Treuhänder an das IT-Unternehmen erbrachte Leistung. Der Treuhänder hat dieses Entgelt als Umsatz zu versteuern. Es existieren seitens der Eidgenössischen Steuerverwaltung (ESTV) keine konkreten Ausführungen zum Marktpreis, weshalb sich die Ermittlung des korrekten Marktpreises in der Praxis oftmals als schwierig erweist.

In accordance with the principle of gross invoicing, offsetting in which only the difference is booked is not permitted for VAT purposes (violation of the ban on offsetting). The mere booking of the dif-ference between the mutually provided services is also not permitted if the contracting party is not a taxable person. This also applies if there are no detailed records of the supplies to be offset, i.e. if only the amount to be paid has been invoiced or no invoice has been issued at all.

According to the practice of the FTA, the correct tax treatment of supply offsetting can best be achieved if separate receipts are created for the service and the remuneration (e.g. mutual invoicing). However, this is not a mandatory requirement but also makes sense for accounting reasons (no post-ing without a receipt).

In the following, the offsetting from the VAT perspective is clarified using two examples.

Example 1: Barter transaction between two taxable persons

IT company A provides various IT services to accounting firm B. In return, accounting firm B prepares the accounts for IT company A. Both contracting parties have their registered office in Switzerland, are registered in the Swiss VAT register and invoice according to the effective accounting method. Both parties provide taxable services which are taxable at the standard rate of 7.7%. The value of the mutually provided services including VAT was set in the contract as follows:

IT services to accounting firm B CHF 10 770 (incl. 7.7% VAT)

Accounting services to IT company A CHF 10 770.- (incl. 7.7% VAT)

There is no cash flow between the two parties, as the service and the consideration are of equal val-ue. They both have to book CHF 10,000 as revenue and declare it in the VAT statement as turnover under item 200. At the same time, both parties record the identical amount as an expense for the re-ceipt of the consideration.

Provided that both IT Company A and accounting firm B are entitled to full input tax recovery, both can deduct the invoiced VAT of CHF 770 in full in item 400 of their VAT statement.

Accounting at IT Company A:

In this example, there is a zero-sum game for both contracting parties, since services of the same value and at the same tax rate are mutually offset. For this reason, tax liability and tax credit balance each other out. However, this can also lead to a different result under different conditions, as the next example shows.

Example 2: Barter transaction with only one taxable person

Influencer A fragt beim Hotel B an, ob dieser kostenlos für zwei Nächte bei diesem übernachten könne. Der Preis für die zwei Nächte liegt gemäss Buchungsseite des Hotels bei CHF 1’000 inkl. 3.7% MWST. Im Gegenzug bietet der Influencer an, auf seinen Online-Kanälen für das Hotel B zu werben. Beide Parteien haben ihren (Wohn-)Sitz in der Schweiz. Da Influencer A einen weltweiten Umsatz von CHF 80 000.– pro Jahr erzielt, ist dieser von der Steuerpflicht befreit. Hotel B hingegen ist als steuerpflichtige Person im Schweizer MWST-Register eingetragen.

Hotel B has to pay tax on the market value of the influencer's service as remuneration for its own service. Since the parties have agreed that the mutually provided services should "cancel each other out" (and no additional payment flow is required), they have obviously assumed that the service and the consideration are equivalent in the result. The hotel has to pay tax on the two overnight stays at the applicable tax rate. The special rate of 3.7% applies to accommodation services.

Hotel B therefore books CHF 964.30 as income and declares this as turnover in point 200 of the VAT statement. This results in a tax debt of CHF 35.70, which Hotel B must pay to the FTA.

In return, Hotel B records the advertising service received from Influencer A to the value of CHF 1,000 as an expense. As Influencer A is not registered for VAT, this payment does not include VAT and therefore does not entitle the person to an input tax deduction.

Booking at Hotel B:

In this example, too, there is no cash flow between the parties, as the receivables and liabilities (coun-terclaim) balance each other out in the result.

CONCLUSION

Caution is advised in the case of barter transactions. Both parties must account for the VAT on their full performance (offsetting prohibition). It is advisable to clarify the respective starting position (ap-plicable tax rate, accounting method, etc.) of both parties in detail in order to be able to correctly assess the VAT consequences of the exchange transaction. Certain case constellations can certainly lead to the VAT having a negative impact on the margin of the contracting parties.