Update on value added tax

Case 1: Contribution in kind 

1. basic facts: contribution of property to Immo AG

Ms. Livia Wenger, resident in Wohlen (AG), has a commercial property in Rümlang (ZH) in her private assets, which she inherited from her mother in 2022. Her mother bought the property in 2015 including VAT. Like her mother, Ms. Livia Wenger also opted for VAT on the rental of the commercial property.

As Ms. Livia Wenger is also planning further real estate transactions and does not want to run the risk of being classified as a commercial real estate dealer one day, she is transferring this property, along with others, to the newly founded Wenger Immo AG based in Wohlen.

According to the practice of the Zurich cantonal tax office, a contribution value of 75% of the market value is accepted. The market value is CHF 5 million and the property will be transferred to Wenger Immo AG for CHF 4 million. The opting out of rents is to be retained.

Question

• How is the transfer of the property to Wenger Immo AG to be assessed for VAT purposes?

2. factual variant 1: vehicle contribution

After the transfer of the commercial property, Ms. Livia Wenger deregisters from VAT.

One year later, she contributes her private vehicle worth CHF 65,000 to Wenger Immo AG as a contribution in kind. A premium of CHF 50,000 is recorded as the contribution value. The vehicle is used by her as managing director of Wenger Immo AG.

Question

• How is the contribution of the vehicle to be assessed for VAT purposes?

3. factual variant 2: submission of GA/half-tax

Another year later, Wenger Immo AG provides Ms. Livia Wenger with an SBB GA travelcard (alternatively an SBB half-fare travelcard).

Question

• How do you assess this from a VAT perspective?

Case 2: Definition of an undertaking, third-party pricing and tax avoidance

1. basic facts: airplane

Pegasus AG, which is entered in the register of persons liable for VAT, is the owner of an aircraft registered in Switzerland. Input tax of CHF 2 million will be incurred in 2022 in connection with the importation and operation of the aircraft.

In 2022, the aircraft will be used for 1000 flight hours as follows

• 500 flying hours from the CEO of Pegasus AG, who uses it to attend business meetings worldwide.
• 200 flying hours by the sole shareholder of Pegasus AG, Mr. Bellerophon. He uses the aircraft in particular for flights between Zurich and Dubai (vacation home). Mr. Bellerophon pays the standard third-party price for the flights. He has neither a de facto nor a legal right of priority.
• 100 flight hours from Peirene, the daughter of Mr. Bellerophon, for travel between Zurich and Dubai. Mr. Bellerophon's daughter Peirene pays the standard third-party price for the flights. She has neither a de facto nor a legal right of priority.
• 200 flight hours in connection with positioning flights (100 of which in connection with the flights of Mr. Bellerophon and his daughter Peirene).

Questions

• How much input tax can be claimed in connection with the import and operation of the aircraft?
• What would change if the CEO needed 2,100 flying hours?

2. factual variant 1: Vehicle (standard case)

Phaethon AG, which is entered in the VAT register, rents out underground parking spaces for cars in the luxury segment and operates a car care workshop. As at December 31, 2022, Phaethon AG was the owner of two classic cars. These are also made available to the sole shareholder of Phaethon AG, Mr. Bellerophon, for private use. Mr. Bellerophon is also provided with a company car.

Question

• Can the full input tax deduction be claimed in connection with the operation of the classic cars? If so, what needs to be done?

2. factual variant 2: vacation home

Mr. Bellerophon is the sole shareholder of Fides AG, which is active in the fiduciary business. Fides AG has also owned a vacation home in Goms (canton of Valais) since January 1, 2022. The vacation home is available to Mr. Bellorophon for his sole use. For this, he pays Fides AG a normal market fee, which is subject to taxation at the special rate of 3.7 %. With a holding period of 20 years, Fides AG expects a total pre-tax surplus of CHF 40,000.

Question

• Can Fides AG claim input tax deduction in connection with the purchase and operation of the vacation home?

Case 3: Demolition of real estate

1. basic facts: demolition of real estate

Fabrik AG, based in St. Gallen, is the owner of a property in St. Gallen. Until the end of 2022, it operated a factory on the property and was able to fully deduct input tax. In 2023, the land will be rezoned from industrial to residential. Fabrik AG is subsequently developing a concept for the development of residential properties.

Following the end of operations at the factory at the end of 2022, Fabrik AG will continue to rent the former factory property to various tenants in the meantime, opting out of the rental agreements. However, these tenancies are limited to 2 years, whereby they can be extended at short notice until the residential development finally begins.

In the fall of 2023, Fabrik AG finds a buyer for the property, namely Immo AG, based in Zurich. Immo AG takes over both the opted rental agreements and the development project for the residential complex. However, the start of construction is still delayed, meaning that the rental agreements are extended at short notice until the demolition of the factory and the construction of the new building finally begins in 2027.

Question

• Can Immo AG deduct input tax on the costs of dismantling the factory?

¹ Inspired by BGer, 13.9.2022, 2C_876/2020.

Case 4: Partial legal force

1. basic facts: partial legal force of an assessment notice (EM)

Following an inspection at Janus GmbH, the FTA corrected the tax claim by CHF 20,000 in its favor (tax period 2011) in an assessment notice (EM) dated 18 June 2018. On July 9, 2018, Janus GmbH unconditionally paid the amount of CHF 15,000 in connection with the additional charge for the withholding tax and private shares.

Question

• Has the EM become partially enforceable due to the unconditional payment?

2. factual variant 1: Object of partial legal force

In an EM dated January 13, 2017, the FTA demanded CHF 20,000 from Entoria AG for the 2012 tax period. This is made up as follows:

1. Value added tax on the purchase of services from the Magnus law firm (based in Copenhagen, Denmark): CHF 30'000.
2. Input tax deduction for the purchase of services from the Magnus law firm (based in Copenhagen, Denmark): CHF 10,000 (no full input tax deduction possible).
3. Private shares due to company vehicles: CHF 5,000.
4. Other input taxes forgotten by Entoria AG: 5,000.

In a letter dated January 15, 2017, Entoria AG informed the FTA that it acknowledged points 2 and 4 of the EM. For the rest, however, it contests the additional claim and requests a contestable ruling in this regard.

Question

• The proceedings are dragging on. Which cases will expire on January 1, 2023 if they do not become legally binding before then?

3. factual variant 2: Return to legally binding parts of the EM

As part of the dispute proceedings, the FTA determined that it had made significant errors during the audit of Cardea GmbH. Instead of an additional claim in connection with brokerage services in the financial sector amounting to CHF 1 million, Cardea GmbH was only charged CHF 5,000. Cardea AG paid the CHF 5,000 without reservation. Only the additional charges in connection with unpaid purchase taxes and private shares are still in dispute.

Question

• Can the FTA return to the additional claims in connection with the mediation services in the financial sector as part of the dispute procedure?

4. factual variant 3: Partial legal force in the objection procedure

In the objection proceedings, Cardea AG only requests that the additional charge in connection with the private shares be reversed. However, it is not requesting anything with regard to the purchase tax.

Questions

• Does the additional claim for the purchase tax become legally binding?
• Can the FTA make the reference tax the subject of the objection procedure despite the absence of an application by Cardea AG?