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VAT/Customs

Nadia Tarolli Schmidt

Urs Denzler

Performance combination and discretionary assessments

Workshop on the occasion of the ISIS) seminar of 24 September 2020 entitled "Value Added Tax. Current. Compact. Interdisciplinary."

09/2020
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Preliminary remark

This script does not claim to be a scientific treatise on the subject at hand. Rather, the author wanted to explain current issues discussed in practice, which can be presented in a 60-minute paper. Possible similarities to real cases, especially in the random choice of names and branches or the random naming of localities, are not intended. At the request of the seminar management, case studies outside the travel industry were selected in Part A "Service combination" wherever possible. Unless otherwise stated, the companies are entered in the VAT register and charge according to the effective method.

The present script does not contain any special explanations about cryptocoins/token, which could raise questions about the combination of services due to possible hybrid forms (e.g. investment coins/token with additional usage function). In this respect, reference is made to the presentation by Britta Rehfisch and René Ledermann.

For the Federal Tax Administration (FTA), the information provided in the VAT Act, VAT Ordinance, VAT information, VAT sector information and VAT practice information is decisive for the correct and legally compliant collection of VAT. In doing so, it also takes into account the case law of the Federal Administrative Court and the Federal Supreme Court.

If the explanations and approaches differ from the publications or the practice of the FTA, the practice definitions of the FTA are relevant for the preparation of VAT statements. Anyone who does not wish to apply these practices must notify the FTA in writing in advance (Art. 96 para. 3 VAT Act).

A. Service combination

1 case studies

1.1 The colourful flower meadow

Facts

Little Linda loves flowers and wishes for a book for her birthday. Buch AG, based in St. Gallen, offers the twenty-page children's book "Die bunte Blumenwiese" in its online shop for CHF 20, in which the most famous meadow flowers are illustrated and named. Linda's aunt, who would like to fulfill her wish, also orders the CD "Frühlingslieder" (spring songs), which would cost CHF 8 for a single purchase. Buch AG offers both products at a flat rate of CHF 25 and charges this flat rate.

  1. Can the combination rule be applied? Make a detailed qualification of the service (type [delivery or service], place, tax rate/exempted/exempted or abroad).
Facts variant

Little Linda loves flowers. Linda's aunt orders an e-book as a birthday present for Linda in the online shop of Buch GmbH, a German-based company that is not registered in the VAT register. In the e-book well-known meadow flowers are illustrated and described. But Linda is most happy about the possibility to start the e-book on the tablet and to create a digital flower meadow with her index finger by positioning flowers in the meadow and then painting them virtually.

  1. Make a detailed qualification of the service (type [delivery or service], place, tax rate/exempted/exempted or abroad).
  2. What consequences does your assessment mentioned under b) have for Linda's aunt or for Buch GmbH with regard to tax liability or subscription tax liability?

1.2 Association "curl up your life

Facts

As the name suggests, the club mentioned in the title offers its members the opportunity to play curling in its own ice rink. However, "curl up your life" also places great emphasis on social contacts after the game on the ice. It is not unusual for a curling evening to end with a cosy meal in the club restaurant.

The association has the following income:

  • Statutory membership fee active
  • Statutory membership fee passive
  • Advertising revenue
  • Hospitality services
  • Income from donations

In addition to individual services, the following combinations of services may be invoiced at the respective flat rate:

  1. Package A at a flat rate of CHF 2'500 consisting of:
  • Statutory membership fee active (CHF 500)
  • Advertising revenue (perimeter) (CHF 2000)
  1. Package B at a flat rate of CHF 1'200 consisting of:
  • Statutory membership fee passive (CHF 200)
  • Advertising revenue ("target circle" [dolly]) (CHF 1000)

Assess whether Packages A and B are possible under the application of Article 19(2) VAT Act. In your assessment, assume that the advertising revenue is actually taxable advertising and not an exempt advertising service (Art. 21(2)(27) VAT Act).

1.3 Finanzberatungs AG

Facts

As Finanzberatungs AG, former insurance agent Peter and former tax commissioner Sophie serve SME businesses and private clients.

Since 1.01.2019, Finanzberatungs AG has been offering a complete advisory service for a lump sum of CHF 1,200.

MWST Value Added Tax Service Combination and Discretionary Assessments Nadia Tarolli Schmidt Urs Denzler Seminar Case Studies ZSIS ISIS Steuerrecht tax law Service Combination Basics
  1. Comment on the invoice shown above from a VAT point of view. What kind of services are involved? Can the combination rule be applied? In your considerations, assume that the benefits in the insurance sector within the meaning of Article 19 paragraph 2 VAT Act predominate.
  2. Assume that invoices have been sent according to the above-mentioned scheme since 01.01.2019. What advice do you give to Finanzberatungs AG with regard to your answer under 1.

B. Discretionary assessments

1 case studies

1.1 Ristorante da Rosa

Facts

After Rosa had already run several restaurants, she was now able to fulfil a dream and opened her own business with the "Ristorante da Rosa". The "Ristorante da Rosa AG" shows the following balance sheet and income statement:

MWST Value Added Tax Service Combination and Discretionary Assessments Nadia Tarolli Schmidt Urs Denzler Seminar Case Studies ZSIS ISIS Steuerrecht tax law Service Combination Basics

This picture is also reflected accordingly in previous years, with the loss increasing year by year.

  1. What do you notice when you do a rough check?
  2. Concerning the position cash register, the following can be noted:
  • A cash book is not kept.
  • The bank has cash deposits of CHF 10,000 each.
  • No electronic or physical sales journals or the like were kept by the cash register. Only the "sales slips" were kept. These show the following picture:
MWST Value Added Tax Service Combination and Discretionary Assessments Nadia Tarolli Schmidt Urs Denzler Seminar Case Studies ZSIS ISIS Steuerrecht tax law Service Combination Basics

What stands out to you?

  1. Assume that the FTA has rejected the bookkeeping and has determined the taxable turnover approximately according to its dutiful discretion. In doing so, it used a gross profit of 70% (ruling BVGer A-5892/2018 of 4 July 2019, E. 3.3.1). The taxpayer does not agree with this approach and would like to prevent this discretionary assessment with the following arguments:
  • The cantonal tax administration, which is familiar with the specific local circumstances, did not offset turnover or profits, although it had also carried out an audit at an earlier stage.
  • The gross profit of 70% is based, among other things, on data from the FTA outside the control period, which was affected by extraordinary events such as the financial crisis.
  • The business has only been in existence for three years, so that the gross profit in the start-up phase of the business cannot be expected to be the same as for an established business.

Evaluate the above arguments. How promising are they?

  1. Unfortunately, the FTA cannot be dissuaded from its discretionary assessment with the arguments presented under 3). Rosa therefore tries to keep the damage as small as possible with the following input: If the turnover must be increased at the discretion of the FTA, then the latter must consequently calculate and apply an input tax deduction to the same extent. What do you think of this argument? Please comment on it.

1.2 B+C Architektur AG

Facts

Both B+C Architektur AG and Berta Immobilienverwaltungs GmbH and Cäsar Immobilienvermarktungs GmbH are active in the real estate sector. The following is known about the three companies:

B+C Architecture AG:

  • Shareholder B and shareholder C each with half
  • Purpose: architectural services
  • Accounting method: effective

Berta Immobilienverwaltungs GmbH:

  • Managing sole shareholder B
  • Purpose: Real estate management services
  • Settlement method: Balance tax rate
  • Headcount without shareholders: zero

Caesar Immobilienvermarktungs GmbH:

  • Managing sole shareholder C
  • Purpose: Service in the field of real estate marketing
  • Settlement method: Balance tax rate
  • Headcount without shareholders: zero
  1. The income statements show the following schematic diagram. What do you notice when looking through them?
MWST Value Added Tax Service Combination and Discretionary Assessments Nadia Tarolli Schmidt Urs Denzler Seminar Case Studies ZSIS ISIS Steuerrecht tax law Service Combination Basics
MWST Value Added Tax Service Combination and Discretionary Assessments Nadia Tarolli Schmidt Urs Denzler Seminar Case Studies ZSIS ISIS Steuerrecht tax law Service Combination Basics
  1. Assume that Berta Immobilienverwaltungs GmbH and Cäsar Immobilienvermarktungs GmbH have obtained the resources necessary for their service provision from B+C Architektur AG. Please briefly explain how you think these services could be used to determine the current price.
  2. What other situation comes to your mind where benefits are paid to a closely related person?
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