Once again the Federal Administrative Court has decided in favour of the taxpayer. Specifically the question was whether the FTA’s practice according to MWST-Praxis-Info 04 “Clarifications of MWST-Info 02” is tenable. The FTA takes the view that tax liability is not given, “if it is foreseeable that the expenditures for an activity are not permanently covered at least 25% by revenues from services (excluding investment and interest income), but more than 75% by non-considerations, such as subventions, donations, cross-financing, capital contributions, etc., without there being a specific business reason.”
A consequence of this practice is that a number of previously taxable, in particular charitable, organisations were struck off the VAT Register and this, although they had generated a turnover of several hundred thousand Swiss francs from taxable services. The striking off also meant the loss of the input tax deduction.
The Federal Administrative Court concluded that the FTA’s practice does not comply with the law and affirmed the organisations’ tax liability. At the same time the Court held that affirmation of tax liability does not automatically mean that all input taxes are allowed as a deduction. Rather it is necessary to examine whether, in addition to the business, there exists also a non-business, area, for which no input tax is possible.
The case was therefore referred back to the FTA, which must determine the non-business area and the entitlement to input tax deduction.
The FTA now has the possibility of appealing the decision to the Federal Court. If it does not do so, it will have to give up the 25/75% practice for determining tax liability and revise its publication. This will also be the time, when the (charitable) organisations have (again) to review whether they are rightly not registered as VAT payers.