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.
BACKGROUND
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.
JUDGMENT OF THE FEDERAL SUPREME COURT
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.
CONCLUSION
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.
