BACKGROUNDFrom 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_609/2022Facts 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?