Practical cases on value added tax

Case 1: Joint and several liability of liquidators

1. facts of the case

Hades AG, which is entered in the register of taxable persons, is in financial difficulties and has to file for bankruptcy. On 20 September 2017, Hades AG was granted a moratorium and Mr Hermes was appointed as administrator.

In a letter from the administrator dated 22 July 2018, a composition agreement with assignment of assets (liquidation settlement) is proposed to the creditors (including the FTA) instead of the originally intended composition deferral (percentage/dividend settlement or deferral settlement). This composition agreement will be approved by the court on 23 February 2019.

Bankruptcy proceedings are opened against Hades AG on 24 September 2020. The FTA enters a total claim of CHF 155,000 (plus interest on arrears and debt collection costs). This is a debtor-in-possession liability (tax receivables from 20 September 2017 to 24 September 2020).

In a judgment dated 5 April 2021, the bankruptcy proceedings are discontinued due to a lack of assets and Hades AG is ex officio deleted from the commercial register on 12 July 2021.

Question(s)

• Is Mr Hermes jointly and severally liable for the outstanding tax claims of the estate?

Case 2: Deposits from communities

1. facts of the case

The City of Bern establishes the foundation "Kulturförderung Bern". The purpose of the foundation is to promote cultural life in the city of Bern through its own cultural enterprises and the promotion of corresponding cultural projects. The foundation does not pursue a profit motive. There is a basis under public law for the promotion of culture.

The City of Bern grants the Foundation non-interest-bearing endowment capital of CHF 5 million. In addition, interest-free loans are granted, the repayment of which is waived depending on the course of business.

Question(s)

• The Foundation for the Promotion of Culture Berne wonders how it should deal with the City of Berne's grants in terms of value-added tax.
• Does anything change if not only the City of Bern but also the Canton of Bern participates in the endowment capital (50% each)?
• How does it look if the Foundation for the Promotion of Culture Berne itself does not run any cultural enterprises, but only makes corresponding awards to cultural projects?

Case 3: Refurbishments

1. facts of the case

Gimmick AG, based in Zug, is active in the financial sector.

On the liabilities side, it has debt capital of CHF 15 million, share capital of CHF 1 million and losses of CHF 2 million at the end of 2020.

Borrowings include a loan from Zuger Kantonalbank (a public limited company under cantonal public law with its registered office in Zug) of CHF 5 million and a loan from its German parent company, Weise AG with its registered office in Munich (not VAT registered), of CHF 1 million.

Due to the over-indebtedness under commercial law in accordance with Art. 725 Para. 2 of the Swiss Code of Obligations, there is now a need for action. As part of the restructuring, both Zuger Kantonalbank and Weise AG waive their loan claim in the amount of CHF 1 million each to write off the losses.

Question(s)

• How should this be assessed for VAT purposes?
• Variant 1: Instead of waiving the claim, Weise AG makes a claim contribution to Gimmick AG.
• Variant 2: What if the outstanding claim of Weise AG, which is waived, is based on the prior transfer of licences to Gimmick AG?
• Variant 3: How do you assess the facts if the outstanding claim of Weise AG, which is waived, is based on the transfer of licences to Gimmick AG at the time, whereby the claim has been converted into a long-term loan?

Case 4: Attorney-client privilege and the law of evidence

1. facts of the case

Tahuti Law Firm Ltd is entered in the register of taxable persons.

In the course of an audit, the FTA offset a total tax amount of CHF 360,000 against Tahuti AG. The reason given for this offset was that Tahuti AG had not proven that it had provided part of its services - as it claimed - to foreign clients ("offshore companies"). Accordingly, it could not be assumed that it provided (tax-free) services abroad; the services were taxable at the standard rate.

Tahuti AG argues that the attorney-client privilege does not allow it to submit further evidence. In the proceedings before the Federal Administrative Court, it submits a dossier from Treuhand Philotes, which confirms that the recipients of the benefits in question (or their beneficial owners) are domiciled/resident abroad. On this basis, it requested that the appeal be upheld.

In the alternative, Tahuti AG requests that the Federal Administrative Court appoint an expert to examine the report of Treuhand Philotes.

Questions

• Can Tahuti AG invoke legal professional privilege?
• Should her request for the appointment of an expert be granted?
• How will the Federal Administrative Court proceed in reaching its decision?
• Would it be possible to complain about the violation of the right to evidence? Would Tahuti AG be able to submit additional evidence in a possible subsequent proceeding before the Federal Supreme Court?