VAT and contract law

Case 1: Contractual rollover

Case 1a: Contractual relationship with participation of a consumer

X is a hobby footballer and orders a pair of football shoes on the Internet, which are priced at CHF 200. When X receives the football shoes two days later, he is surprised by the enclosed invoice for CHF 216. The sports shop where X ordered the shoes is of the opinion that the agreed price is exclusive of VAT and therefore charged X an additional CHF 16 VAT.

X does not want to pay the CHF 16 and wonders whether he will have to accept this transfer of value added tax?

Case 1b: Contractual relationships between businesses entitled to deduct input tax

X AG manufactures components of X-ray equipment, which it sells to Y AG. The main activity of the buying Y AG is to assemble the X-ray machines and then resell them to Swiss hospitals. There is a long-standing business relationship between X AG and Y AG. In each case, payment was made as agreed. The value added tax was therefore included. Additional claims were never asserted by X AG. As usual, Y AG buys components at an agreed price of CHF 25,000 from X AG. X AG now sends Y AG an invoice for CHF 27,000 (agreed price of CHF 25,000 plus VAT in the amount of CHF 2,000).

Y AG would like to know whether it has to pay the additional CHF 2,000, even though a price of CHF 25,000 was agreed?

Case 1c: Contractual relations between businesses with limited right of deduction for the recipient of the services

A Swiss hospital buys an X-ray machine from Y AG. The agreed purchase price is CHF 50,000, the hospital is purchasing from Y AG for the first time. A corresponding contractual provision with regard to VAT was inadvertently not included in the contract and was not mentioned elsewhere. The hospital now receives an invoice for CHF 54,000 (agreed purchase price plus VAT).

Does the hospital have to pay the value added tax?

Case 2: Clause on the notification procedure (excluding real estate)

Please comment on the contract clause below from a VAT perspective. It originates from an asset purchase agreement.

To the extent that the transaction contemplated by this Agreement is in scope of Swiss VAT, the Parties take the view that the sale of the Purchased Assets qualifies as taxable supply from a Swiss VAT perspective. It is mutually agreed that the Seller will apply the notification procedure applicable to such transfer of a going concern ("Swiss TOGC") in accordance with Article 38 of the Swiss Value Added Tax Act. Therefore, the Seller shall file after Closing with the Swiss Federal Tax Administration a duly completed form "Nr. 764 zur Meldung gemäß Artikel 38 MWSTG", signed by the Seller and the Buyer at Closing. The Seller will prepare such form together with the Buyer prior to Closing.

Provided that the Swiss Federal Tax Administration accepts the aforementioned procedure, no Swiss VAT will be charged to the Buyer on the consideration. The respective Seller warrants to the Buyer that it is duly and properly registered in Switzerland for the purposes of Swiss VAT. The Buyer warrants to the Seller that the Buyer is or shall as of the Closing be duly and properly registered in Switzerland for the purposes of Swiss VAT.

If the Swiss Federal Tax Administration subsequently determines that the sale of the Purchased Assets does not constitute a Swiss TOGC such that VAT is chargeable on the transactions contemplated by this Agreement, the Buyer shall pay to the respective Seller, within [five (5)] days of receipt of a valid VAT invoice, the amount of VAT chargeable in addition to the Purchase Price [including any interest and penalties, (Seller friendly)

Case 3: Optional sale of real estate

Please comment on the contract clause below from a VAT perspective. It originates from a land purchase agreement.

The transfer of rights in rem in real property is exempt from VAT under Art. 21(2)(20) VAT Act. The taxable seller can tax the exempt service according to Art. 22 MWSTG (option) by openly reporting the tax, provided that the property is not used by the buyer exclusively for residential purposes.

The taxable vendor makes use of the option under Art. 22 para. 1 VAT Act. It confirms that it is entered in the VAT register under the VAT number CHE-[...]. The buyer assures that the property will not be used exclusively for residential purposes immediately after the transfer.

The sales price includes VAT at the statutory rate, currently 8.0%, for the building in accordance with the option rate of 73.52% guaranteed by the seller and is shown separately in the sales price in accordance with the provisions of Art. 26 Para. 1 and 2 VAT Act in conjunction with Art. 22 VAT Act. The separately stated purchase price for the land portion is not to be included in the VAT assessment base pursuant to Art. 24 para. 6 let. c MWSTG.

Any property transfer tax is also not included in the assessment basis for VAT.

If the buyer uses the part of the building sold with an option exclusively for residential purposes immediately after the purchase, and if for these reasons the option is not recognised by the FTA on the occasion of a revision, any own consumption tax to be paid by the seller as a result of the change of use will be borne entirely by the buyer. Any VAT from the sale already paid to the Swiss Federal Tax Administration by the seller in this case will only be refunded by the seller to the buyer if the seller receives this VAT refund from the Swiss Federal Tax Administration.

Furthermore, should the option rate guaranteed here be too high in comparison with the portion of the taxable use by the seller at the time of the purchase regulated here, which is effectively decisive for the purposes of calculating the input tax deduction, on the basis of legally binding findings by the Swiss Federal Tax Administration, the seller is liable to the purchaser for own consumption tax or input tax reductions which may be incurred by the purchaser immediately after the purchase regulated here due to the option rate being too high. In contrast, the seller is not liable for any changes in use resulting from facts occurring after the sale, and any resulting taxes on own consumption are borne entirely by the buyer.

The parties confirm that the notification procedure pursuant to Art. 38 VAT Act is not applied to this transaction.

Case 4: Contract clause rental of real estate with/without option

Please comment on the contract clause below from a VAT perspective. It comes from a rental agreement.

The taxable landlord has made use of the option of opting by openly showing the VAT on the rent and any ancillary costs. The VAT is shown in accordance with the law. The option is exercised during the agreed contractual period. By signing the rental agreement, the tenant confirms that the rented property will not be used exclusively for private purposes.

VAT is charged on the agreed rent and any additional costs at the statutory rate (cf. calculation of the rent at the VAT rate applicable at the time the contract is concluded). In the event of changes in the VAT rate, the Lessor is entitled to notify the Lessee of the resulting adjustment of the rent in the legally prescribed form, currently by means of an official form, to the date on which the new VAT rate comes into force.

If the option is no longer available during the term of the contract for reasons for which the lessee is responsible (e.g. exclusive private use), the lessor is entitled to continue to charge the lessee any own consumption tax that may be owed as a result of the change of use.

The lessee also undertakes to pay any personal consumption tax and any other costs if the rental relationship is terminated prematurely, i.e. extraordinarily, for reasons for which the lessee is responsible and this results in the loss of the option. The liability for these costs shall not apply if the option for rental/leasing can be continued to the same extent with a subsequent lessee/leaseholder, which the lessor undertakes to endeavour to do. The liability extends until the time of re-leasing/re-leasing or until the regular expiry of the contract. The Lessor undertakes to inform the Lessee accordingly in good time.

The own consumption tax is due at the time of the premature discontinuation of the option, with crediting of the own consumption tax at the time of the termination of the rental agreement as specified in the rental agreement.

The own consumption tax amount to be paid can be paid either in the form of a one-off payment or by adjusting the rent, provided the rental relationship remains in place. An adjustment of the rent will be made, subject to a notice period of one month on the first day of each month, in such a way that the tax amount to be paid will bear interest and be amortised in accordance with the principles customary in the industry as a result of the increased rent until the date of termination of the contract.

The Lessee undertakes to make available to the Lessor immediately and free of charge any documents or information required for maintaining the option at the first request.

Case 5: Cross border factoring

You will find a factoring agreement in the enclosure. They represent the interests of the Bank. What clauses do they propose from a VAT point of view? (see free download)

Case 6: Sub-distribution agreement CISA

You will find a sub-distribution agreement in the enclosure. They represent the interests of the subdistributor. What clauses do they propose from a VAT point of view? (see free download)