VAT pitfalls in real estate transactions

Case 1: Transfer of real estate under VAT law

1. facts of the case

1.1 Basic case

Real Estate AG sells its commercial property, which it built in 2017 for CHF 10 million (excl. VAT) and since then fully leased on an opting basis, to Invest AG for CHF 15 million (share of land value CHF 3 million).

1.2 Variant The acquirer settles with flat tax rates

Real Estate AG sells the property to Krankenhaus AG in accordance with the basic case. So far, 50% of the property has already been leased to hospital employees and another 50% to a restaurant operator with an option. The purchaser wishes to continue the use of the property. She settles with flat tax rates.

Questions

• How are the transfers of ownership to be assessed for VAT purposes?
• What are the consequences for the seller and the buyer?

Case 2: Reporting procedure - transfer of individual properties

1. facts of the case

Group company A holds a property which it has previously used for its production activities but will no longer need in the future as it is outsourcing production to a third party. It transfers this property to Group company B at profit tax values. The main purpose of Group company B is to hold, manage and actively market real estate.

From a direct tax point of view, the requirements for a tax-neutral group transfer of fixed assets according to Art. 61 para. 3 DBG, Art. 24 para. 3quarter StHG are met.

Questions

• Can or must the notification procedure according to Art. 38 MWSTG be used for the transfer?
• Are there other transfer options from a VAT perspective and how should they be assessed?

Case 3: Reporting procedure - real estate as a business/partial business

1. facts of the case

Construction Company A wishes to spin off its real estate holdings to Subsidiary B by way of succession planning. For this purpose, the real estate (real estate let with option), two part-time employees for real estate management, receivables and liabilities from the real estate business and operating fixed assets (furniture, software) are transferred to the subsidiary.

• Option A: The requirements for a real estate business pursuant to KS 5a "Restructuring" of February 1, 2022, section 3.2.2.3 are met. Therefore, there is a tax-neutral restructuring process pursuant to Art. 61 DBG.
• Variant B: The requirements for a real estate business within the meaning of KS 5a are not met (i.e. ratio of 1 employee, CHF 20 million rental income, CHF 40 million real estate assets not met = rule case). Therefore, the spin-off is not tax-neutral according to Art. 61 DBG.
• Variant C: Construction company A spins off its construction operations, including its operating real estate, to subsidiary B. Company A retains the real estate leased to third parties, two part-time employees and the receivables and liabilities associated with the leasing of the real estate.

Questions

• Can or must the notification procedure according to Art. 38 MWSTG be used for the transfer?
• Are there other transfer options from a VAT perspective?

Case 4: Input tax deduction for demolition costs without change of ownership

1. facts of the case

Hephaistos AG, which has been entered in the register of VAT payers since 1995 and is actually invoicing, uses a building in Uster in the Canton of Zurich for commercial purposes. On January 1, 2021, Hephaistos AG will have the commercially used building demolished by Perses AG and will begin with the partial overbuilding of the now vacant site. Apartments will be built for rent to private individuals.

Perses AG will invoice Hephaistos AG for the demolition with VAT.

Questions

• May Hephaistos AG claim the input tax deduction on the demolition costs?
• Does it matter that only part of the site will be built over with the new superstructure?

Case 5: Input tax deduction for demolition costs without change of ownership Purely structural measures

1. facts of the case

Xenios AG, which has been entered in the register of VAT payers since 1995 and is actually invoicing, uses a hotel building in Ostermundigen in the Canton of Bern for commercial purposes (hotel business). On January 1, 2021, Xenios AG will have the hotel building converted by Janus AG; the hotel business will be discontinued. After the conversion, the existing hotel rooms will be rented out to private individuals as apartments.

Janus AG invoices Xenios AG for the conversion, including value-added tax.

Question

• May Xenios AG claim the input tax deduction on the conversion work?

Case 6: Input tax deduction for demolition costs with change of ownership / Immediate demolition

1. facts of the case

Hephaistos AG, which has been registered and effectively invoiced in the register of VAT payers since 1995, uses a building in Brig in the canton of Valais for commercial purposes. On January 1, 2021, Hephaistos AG sells the commercially used building to Thetis AG. Thetis AG commissions Perses AG with the demolition. It will then begin to build on the now vacant site. Apartments will be built for rent to private individuals.

Perses AG will invoice Thetis AG for the demolition with VAT.

Questions

• May Thetis AG claim the input tax deduction on the demolition costs?
• Do you see potential for optimization in terms of value added tax?

Case 7: Input tax deduction for demolition costs with change of ownership / interim use

1. facts of the case

Hephaistos AG, which has been registered and effectively invoiced in the register of VAT payers since 1995, owns a commercial building in Airolo in the canton of Ticino. On January 1, 2019, Hephaistos AG will sell the building to Thetis AG. Thetis AG intends to demolish the building and subsequently construct apartments (leasing to private individuals for residential purposes). Thetis AG commissions Perses AG with the demolition. From the purchase of the residential building on January 1, 2019 until its demolition on July 1, 2022, Thetis AG leased the commercial building with an option (interim use).

Perses AG will invoice Thetis AG for the demolition with VAT.

Question

• May Thetis AG claim the input tax deduction on the demolition costs?