VAT law problems relating to real estate, in particular the construction, use and sale of real estate, and real estate companies

Case 1: Landowner and investor Heinz Reich

Facts

The investor Heinz Reich is having single and multiple family houses built on his land for subsequent sale or letting by the general contractor Gross AG.

After receiving the building permit, the single and multi-family houses were put out to tender for sale or rent.

Heinz Reich was able to sell or rent out some of the single-family houses or apartment buildings or individual apartments before construction began, the others after construction began, and in some cases only after construction was completed.

Specifically, notarised purchase and preliminary purchase agreements were concluded before the start of construction for the following properties:

• 2 single-family houses, VP excl. land price CHF 1'250'000
• 1 apartment building to the insurance company Security AG, VP excl. land price CHF 5'400'000
• 6 apartments in various apartment buildings to private individuals who use them for their own residential purposes. The selling prices excluding the land price range from CHF 450,000 to CHF 830,000.

In addition, before the start of construction, 8 apartments in various apartment buildings could be rented to natural persons who have their residence there.

For the remaining single and multi-family houses, purchase or rental contracts could only be concluded after the start of construction. Of these, a further apartment building was sold to the insurance company Security AG.

Question

1. Does Heinz Reich become liable for VAT as a result of these sales or rentals?
2. In the case of a given tax liability, it must be determined which services are subject to tax and which are exempt from tax.
3. Can Heinz Reich opt for individual services within the meaning of Art. 22 MWSTG? If so, for which ones?

Case 2: Creation of a VAT group

Facts

Gross Immobilienträume AG constructed an office building for CHF 108 million (including 8% VAT). From 1.1.2015, it rented it 100% with option to third parties and to the two group companies Gross Schulungen AG and Kleingeist Seminare GmbH. Due to the full lease with option, Gross Immobilienträume AG claimed the VAT on the construction costs in full as input tax. It is assumed that no expenses directly attributable to the rental units were incurred. Gross Immobilienträume AG intends to form a VAT group with the companies Gross Schulungen AG and Kleingeist Seminare GmbH as of 1.1.2018.

The percentage of the space rented by Gross Schulungen AG, Kleingeist Seminare GmbH and third parties is 33.3% each.

Gross Immobilienträume AG has an input tax deduction rate of 100%, Gross Schulungen AG has an input tax deduction rate of 75% and Kleingeist Seminare GmbH has an input tax deduction rate of 85%.

In 2020, Gross Immobilienträume AG sells the property to one of its third-party tenants through a registration procedure.

Question

1. What are the consequences of the formation of a VAT group for Gross Immobilien- träume AG from a VAT perspective?
2. If the input tax adjustment is determined approximately, is it possible to apply the tolerance limit when forming the VAT group?
3. What are the effects of the takeover of the property in the reporting procedure for the buyer, if the partial changes of use by Gross Immobilienträume AG were determined approximately?

Case 3: Construction of residential and commercial buildings for subsequent sale or rent

Facts

Bau Exklusiv AG builds residential and commercial buildings in a holiday destination on its own land for subsequent sale or rental. Among other things, it has realised the following building object:

Apartment building with sales and office space as well as apartments. On the ground floor are the sales and office premises, on the 1st and 2nd floors 3 apartments each, on the 3rd floor 2 penthouse apartments with large roof terrace.

The tender for sale/letting was issued on 1 May 2015, after the building permit was received on 15.4.2015. Construction work started on 1 September 2015 (start of excavation and continuation of construction without interruption). The premises were ready for occupation from 1 April 2017.

Question

1. Which sales are taxable supplies of real estate, which are tax-exempt supplies of real estate?
2. For which sales is it possible to opt for them within the meaning of Art. 22 MWSTG? Could the notification procedure under Art. 38 MWSTG also be used in individual cases?
3. For which lettings is it possible to use the option within the meaning of Art. 22 MWSTG?
4. On which objects is the right to deduct input tax and at what time?
5. What are the consequences of not opting for sales or rentals despite the possibility?
6. Bau Exklusiv AG has opted to sell the penthouse apartment 1 to Mechanik AG. Mechanik AG will deduct input tax on the purchase, as it rents the penthouse apartment as a holiday home for exclusive use by the main shareholder Binder.
   Does the FTA agree with this procedure?

Case 4: Pension fund Old age

Facts

The Altersfreude pension fund has so far invested exclusively in real estate for residential purposes, but has become subject to VAT due to the leasing of parking spaces to persons who do not rent an apartment at the same time. It has decided to settle accounts according to flat-rate tax rates. An interesting project will be submitted to her in January 2017. Investitions GmbH is looking for a buyer for the residential and commercial property "Zukunft", which is nearing completion.

The usable areas of the property can be divided up as follows:

• Apartments: 20% of
• commercial: 60%
• Public parking (parking hall): 20%.

The value of the land amounts to approximately CHF 30 million. As the property will be at least partially ready for occupancy as of 1 October 2017, Investitions GmbH has already concluded the first rental agreements for commercial space, whereby the rental agreements state that the landlord will opt for taxation.

On 5 April 2017, the Altersfreude pension fund will submit an initial purchase offer of up to CHF 120 million (subject to the approval of the Board of Trustees).

On 15 May 2017, the Altersfreude pension fund will contact a VAT advisor to clarify the VAT consequences of the transaction. It turns out that Investitions GmbH is not registered for VAT purposes. However, the Investitions GmbH is flexible in principle to handle the sale "VAT-optimized".

Question

1. From a VAT perspective, what are the options for handling the sale of residential and commercial property and what are the consequences for Investitions GmbH and the Altersfreude pension fund?
2. From the point of view of the pension fund, which variant should be preferred?

Case 5: Sale of developed building land with sub-project

Facts

Metallwarenfabrik Schick AG bought building land a few years ago with a view to extending the existing factory building. The building land is located in the mixed commercial/residential zone.

Three years ago, she was able to acquire building land with motorway access in the neighbouring municipality. In the meantime, a new building has been constructed there and the entire production has been moved to the neighbouring community.

The existing factory building, which is no longer needed, is now to be converted into lofts for sale or rent.

A development plan for the building land acquired at the time for expansion was drawn up for the construction of mixed residential/commercial premises (shop premises and offices for the lawyer/trustee sector), which was also approved by the municipality. The accumulated costs of the development plans, the partial land development and the detailed plans amount to CHF 270'000 incl. 8 % VAT.

As a result of financing problems, Metallwarenfabrik Schick AG decides to sell the entire building plot purchased for the expansion planned at the time - without the existing factory building - to the general contractor Gross AG. The land price - including the accrued costs of the plans and land development - is CHF 1,270,000, although the detailed purchase contract has yet to be drawn up.

Metallwarenfabrik Schick AG has so far not deducted input tax on the accrued costs, as these are costs relating to the construction of residential premises and, with regard to shop and office premises, it has not yet been determined whether these will be sold or rented with an option.

Question

The two parties to the contract would like to know from you what has to be taken into account with regard to value added tax in the purchase contract.

Case 6: Demolition costs and new construction

Facts

In 2005 Fabrik MalAnders AG acquired the A1 building lease with an existing factory building from Gebrüder Schlau AG for CHF 17 million plus 7.6% VAT. Since then Fabrik MalAnders AG has been the building lease holder for this plot and uses the factory building for production purposes. Fabrik MalAnders AG generates 100% taxable sales within the scope of its production activities.

Due to the high demand for housing and the local housing policy, Fabrik MalAnders AG has decided to close down its production site at the end of March 2017 and then completely demolish the existing factory building in 2017 due to the changed zone planning. Subsequently, Fabrik MalAnders AG intends to build a residential complex on the site of the A1 building lease plot in stages from 2018 onwards and to rent the residential units to private individuals.

Fabrik MalAnders AG agrees with the (also taxable) land owner to adjust the existing building lease agreement for the building lease parcel A1 with regard to the permitted use as well as the building lease interest and at the same time to conclude an additional building lease agreement for the neighbouring and undeveloped building lease parcel A2. No one-off payment is agreed for the adjustment of building lease agreement A1, and a one-off payment of TCHF 100 in favour of the landowner (in addition to the building lease charge) for the granting of building lease agreement A2. Fabrik MalAnders AG will also build a residential development on the building lease A2 for the purpose of letting as part of the overall project.

The MalAnders AG factory intends to have areas A1 and A2 built over by Bau AG. Fabrik MalAnders AG incurred costs of CHF 0.5 million plus 8% VAT for the discontinuation of production operations. It expects total costs of CHF 1 million plus 8% VAT for the dismantling of the existing factory building, and CHF 35 million plus 8% VAT for the construction costs of sites A1 and A2.

Question

1. What are the consequences concerning the right to deduct input tax of Fabrik MalAnders AG in connection with the cessation of production?
2. What are the consequences regarding the right to deduct input tax of Fabrik MalAnders AG in connection with demolition costs and construction costs?
3. What are the VAT consequences for the parties involved regarding the adjustment of building lease agreement A1 and the granting of building lease A2?

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