In our blog post from March 2025, we analysed the ruling of the Federal Administrative Court of February 9, 2024 (A-2765/2022) on the classification of forwarded subsidies in the cultural sector. The case was referred to the Federal Supreme Court. In its decision, the Federal Supreme Court ultimately confirmed the assessment of the lower court but based its ruling in part on different grounds.
Refresher
A-GmbH is active in the field of film production and receives funding for this from a private-law foundation that pursues predominantly public purposes. This foundation has taken over the film funding previously provided by the city and canton of Zurich themselves. It is financed by contributions from the city and canton of Zurich. In the course of an audit, the FTA classified the funding paid out by the foundation as subsidies. The FTA demanded additional tax payments due to a failure to reduce input tax. The foundation contested this assessment.
The Federal Administrative Court based its decision primarily on the fact that the foundation continues to provide film funding that was previously exercised by the state in a private-law form. It follows from this that the earmarking of public subsidies also applies to the contributions made by the foundation to filmmakers. This earmarking is evident in the foundation's purpose and in the conditions for funding, such as the obligation to repay funds in the event of non-compliance.
The resulting restriction on the use of funds argues in favor of classifying the funds as passed-on subsidies and against the assumption that they are voluntary contributions (donations). This assessment is further supported by the fact that, although the foundation is free to select the recipients, it is not free to decide whether to award funding at all. However, it is irrelevant that it is still unclear at the time of payment to the foundation who will receive the contributions.
In addition, it must always be clear to the recipients that the foundation acts solely as an instrument of the canton and city of Zurich for the implementation of public film promotion.
Decision of the Federal Supreme Court
9C_149/2024 of April 14, 2025
In its decision, the Federal Supreme Court noted that it had already dealt with a similar case involving the transfer of subsidies (see also our blog post from November 2023 with the judgment 9C_609/2022 of June 13, 2023). The private-law institution that received the funds as part of a discretionary decision was not free to dispose of them as it saw fit, which argues against the assumption that the donation was VAT-neutral. Rather, it was obliged to use the funds for a clearly defined purpose in the public interest. The fact that the funds were passed on via several intermediaries did not alter their classification as subsidies. It was clear to all parties involved that the funds were ultimately intended to flow to the private-law institution.
The recognizable pattern is also decisive here: the film foundation receives funding from the canton and the city and passes it on to applicants from the film industry for a specific purpose. It was clear to all parties involved that the foundation was fulfilling a clearly defined statutory mandate, namely to receive and distribute public funds via an independent legal entity outside the central government administration. This model underscores the subsidy nature of the payments, not only formally but also functionally.
The Federal Supreme Court also found that the canton and the city had transferred their responsibility for film promotion to the film foundation even more clearly than in the previous case, as the foundation now takes on all tasks – from receiving funding applications to the financial processing of the subsidies. The taxpayer even pointed out that the subsidies had to be repaid if the project was successful. If the project is successful, the subsidy must be repaid; if it is not successful, the subsidy is considered a non-repayable grant. This earmarking precludes classification as a voluntary contribution within the meaning of VAT law.
In conclusion, it should be noted that the subsidies paid by the Film Foundation to the taxpayer are non-remuneratory payments with tax consequences. The input tax deduction must therefore be reduced proportionally. Under the given circumstances, the transfer of public contributions to the final beneficiaries does not lead to a reclassification as a donation.
CONCLUSION
The commitment to act in the public interest is a key aspect of subsidies that can be used to legally classify the payment as a subsidy. However, in tax law practice, there are cases where the structure of financial support arrangements can lead to different tax classifications. Recipients of financial support are therefore well advised to examine the legal structure and tax consequences at an early stage or to seek appropriate advice.
