External appearance versus tax liability

VAT'S IMPORTANT - NEWSLETTER 2025 - 09

NEWSLETTER 2025 - 09

External appearance versus tax liability

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In its judgment A-1035/2025 of May 23, 2025, the Federal Administrative Court (FAC) had to decide whether two separate companies existed – or whether their external appearance was such that they constituted a single company. The turnover threshold of CHF 100,000 was not reached by either of the two individual companies on their own, but was reached when their turnover was added together in the 2019 tax period.

Summary

In the present case, according to the FAC, it must first be examined whether there is a joint subjective tax liability, i.e., whether two separate sole proprietorships or only one jointly taxable company can be assumed. In doing so, it must be asked whether the civil law appearance, according to which two sole proprietorships exist, also corresponds to the actual external appearance. Indications of a joint external appearance arise from :

• overlaps in business activities

• invoicing

• signing authorizations

• spatial conditions such as registered office, address, and office facilities

• market presence,

• website.

In the present case, the FAC considers the following indications to point to a joint external appearance:

• The two sole proprietorships had the same registered office and office address.

• The names of the two sole proprietorships were also very similar due to the reference to the family name.

• No clear and deliberate distinction was made between the two companies.

• The fields of activity entered in the commercial register for both sole proprietorships overlap.

• Taking into account the fact that both sole proprietorships operate from the same location, it is therefore not clear to third parties that they are two different sole proprietorships.

Furthermore, the FAC states in its ruling that even if a uniform subjective tax liability could not be assumed on the basis of the external appearance alone, joint taxation would result from the application of the principles of tax avoidance.

First, the question arises as to the existence of the « objective element », i.e., the unusual nature of the legal structure or the "indirect structure." The appellants' explanations as to why this structure was chosen are not convincing. The legal form was chosen because the auditors were not allowed to participate in the accounting. In particular, the FTA already states that Art. 729 of the Swiss Code of Obligations (CO) specifically allows the auditors to participate in the accounting for limited audits. This provision is intended to relieve smaller companies and enable SMEs to obtain accounting, financial statement preparation, and limited audit advisory services from a single source.

Furthermore, the appellants do not argue in the present case that reasons other than mere tax savings played a relevant role in the legal structuring ("subjective element"). Accordingly, the intention to circumvent the law is presumed if the taxpayer has succeeded in avoiding a taxable event by unusual means and, secondly, it must be assumed that the chosen legal structure was chosen abusively for the sole purpose of saving taxes that would be due if the circumstances were properly arranged. In the opinion of the FAC, this is the case here. The subjective element is therefore fulfilled.

Finally, the actual tax savings resulting from the chosen approach are also present ("effective" element). This means that the conditions for tax evasion are also met in the present case.

The external appearance is so important from a VAT perspective. In order to avoid misinterpretation sand misunderstanding, when setting up companies, it is crucial to be consulted by an expert upfront – and not at a later stage by the Authority or even by the Court.

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We will be happy to assist you with any questions you may have in the area of VAT.

Your terraVAT team

Sabrina Frey Dr. Florian Hanslik

Manager Founding Partner