VAT'S IMPORTANT - NEWSLETTER 2024 - 07
NEWSLETTER 2024 - 07
SUPPLY OF E-SERVICES BY A FOREIGN COMPANY
In its judgment A-5812/2023 of September 17, 2024, the Swiss Federal Administrative Court (hereafter FAC) had to examine whether the appellant was correctly registered retroactively by the Swiss Federal Tax Administration (SFTA) for VAT purposes due to the supply of electronic services to non-taxable Swiss recipients. In its ruling, the court confirmed the SFTA's VAT classification and approach. The FAC dismissed the appeal.
SUMMARY
The appellant operates an electronic platform through which companies can offer their services. The appellant applied for a Swiss VAT registration. In August 2020, the SFTA stated that the taxpayer's business activity should be classified as an electronic service. The registration requirement was therefore deemed to have existed retroactively, which was disputed by the appellant. However, due to the tax liability established by the SFTA, the SFTA deemed the taxpayer to be liable for Swiss VAT for all domestic transactions.The FAC examines the existence of an electronic service. To do so, the following parameters must be met:
The service is provided over the internet.
The service is provided in an automated manner, with minimal human involvement on the part of the service provider.
It is not possible to provide the service without information technology.
In its examination, the FAC quickly comes to the conclusion that these are electronic services.
The court then had to examine whether the appellant had provided the electronic services to non-taxable recipients. From a Swiss VAT Law, a foreign company is subject to VAT if it performs e-services to recipients who either do not operate a business or are exempt from tax and have waived this exemption. In Switzerland, the service provider can be liable for tax on such services from the first Swiss Franc if it generates a worldwide turnover of more than CHF 100,000 and the services are not provided exclusively to taxable recipients. The appellant challenges this procedure and is of the opinion that this must be amended as it violates the right of equality. However, in its judgment, the court supports the SFTA’ s opinion. Accordingly, a company based abroad that provides e-services to companies that are not VAT registered in Switzerland because they have not reached the CHF 100,000 turnover threshold would not be liable for VAT. However, the Swiss based non-Swiss VAT registered recipients themselves only have to pay acquisition tax if they purchase such services for more than CHF 10,000 in a calendar year. Below this threshold, services from companies based abroad could be obtained VAT-free, while the same services from service providers based in Switzerland would be actually VATable. The aim of the counter-exception to the exemption from the VAT liability for e-services was precisely to prevent distortions and the associated tax losses.
The complainant finally emphasizes that it is often no longer possible to pass on the tax if the tax is retroactively reclaimed. The FAC states in this regard that the principle of the ability to pass on VAT requires the VAT law to be designed in such a way that the passing on of VAT shall not be made more difficult, but rather easier. This principle does not give rise to a taxpayer's claim against the state for the passing on of VAT. According to established case law, the payment of legally levied additional tax claims cannot be refused on the grounds of the impossibility of passing on the tax. It is the actual law’s purpose to shift the VAT liability to the foreign e-service provider because it would be way more difficult to enforce the collection of the acquisition tax from non-taxable recipients. Moreover, such services are often not even subject to acquisition tax at all as the CHF 10,000 per year have not been exceeded.
It is very interesting to read the arguments of the court. Honestly, the court is right that it supports the position of the SFTA to register this company retrospectively. Due to the neutrality of the tax and based on the right of equality, it is also correct to defend the VAT liability of the e-service provider with the first sale to non VAT registered entities / private individuals when the threshold is exceeded.
terraVAT wishes a Merry Christmas and
A Happy New Year 2025!
Sabrina Frey Dr. Florian Hanslik
Senior Consultant Founding Partner
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