Federal Council defines VAT liability of foreign companies more precisely

Bern, 12.11.2014 - During its meeting today, the Federal Council approved two amendments to the Value Added Tax Ordinance (VATO) and resolved to bring them into force on 1 January 2015. This measure, in implementation of the Cassis motion (12.4197), should reduce the competitive disadvantages suffered by domestic companies relative to foreign ones until the proposed partial revision of the Value Added Tax Act comes into force.

In the future, foreign companies, just like Swiss companies, will be liable for tax in the event of deliveries in Switzerland that are subject to purchase tax if their turnover in Switzerland amounts to at least CHF 100,000. This concerns primarily foreign companies that carry out work in the construction and construction-related sector in Switzerland. Foreign companies will remain exempt from the tax liability if they solely provide services that are subject to purchase tax, even if they thus generate turnover of more than CHF 100,000 p.a. in Switzerland.

The rules should apply until the partial revision of the Value Added Tax Act (VATA) comes into force and serve to ensure better enforcement of VAT liability via-à-vis foreign companies. It is planned with the partial revision of the VATA that domestic and foreign companies will be subject to tax from the first franc of turnover in Switzerland if their worldwide turnover amounts to more than CHF 100,000. The partial revision of the VATA was out for consultation until the end of September 2014, and the results are now being evaluated.

The ordinance amendment will lead to additional value added tax receipts of approximately CHF 10 million. However, the verification of foreign companies' VAT liability will increase the administrative burden, to the detriment of the support for and monitoring of other taxpayers.

Group taxation for occupational benefits schemes

The second amendment concerns the deletion of Article 16 paragraph 3 of the Value Added Tax Ordinance, which excludes group taxation for occupational benefits schemes in all cases. This provision had been included in the ordinance because joint and several liability among group members for the VAT owed was inconsistent with occupational benefits provision law: the assets of occupational benefits schemes must be beyond the reach of third parties. However, the Federal Supreme Court ruled that the categorical exclusion was unlawful. With the deletion, occupational benefits schemes will no longer be excluded from group taxation as a matter of principle.

Within the scope of the partial revision of the Value Added Tax Act, a limitation of liability for occupational benefits schemes is being examined at the legislative level to improve legal certainty.

Value added tax – definitions:

Delivery: In Swiss value added tax law, the term "delivery" is broader in scope than in general language use. Consequently, it refers not only to the transfer of the economic power to dispose of an item, but also to the execution of work on an item and even the rental and leasing of an item. Real estate can also be the object of a delivery, as a delivery does not require the movement of goods under value added tax law. In everyday language, as well as in international agreements such as GATT/WTO agreements and Schengen/Dublin association agreements, for example, the execution of work on an item, in particular, is referred to as a service.

Service: Under value added tax law, a service refers to the performance of all acts that do not constitute a delivery. This also includes the act of conceding intangible assets and rights. The term "service" is also understood to mean refraining from taking action or tolerating an action or situation.

Purchase tax: Purchase tax is one of three ways of collecting value added tax. It is levied by the Confederation on the acquisition of services provided by companies domiciled abroad. Purchase tax is collected from the service recipient. In the case of deliveries, however, purchase tax is applied only if the delivery in question is not taxed upon importation.

Group taxation: Companies that are linked to one another by the same legal entity can join to form a single taxable entity and thus create a value added tax group. In the case of group taxation, actions between the group members are not taxed. All group members are jointly and severally liable for all taxes owed by the group.

Address for enquiries

Rosemarie Binkert, Lawyer, Federal Tax Administration FTA
Tel. 058 465 72 49, rosemarie.binkert-grob@estv.admin.ch


The Federal Council

Federal Department of Finance