On 1 January 2015 the VAT is 20 years old. Time for a brief review of how VAT, the tax receipts and court judgements have developed.
Development of VAT in Switzerland
Parallel with the development of the Value Added Tax (VAT) in Europe – the first VAT Directive dates back to 1967 – in 1968 the idea of a VAT was also discussed in Switzerland. But it still took more than 20 years and required three national referendums before VAT was introduced in Switzerland in 1995. With this step Switzerland moved closer to the EU’s turnover tax system, which in 1977 with the sixth VAT Directive had laid down a uniform VAT scope for all member states.
The VAT replaced from 1 January 1995 the Warenumsatzsteuer (WUST – sales tax on goods), which had been introduced during the war. The legal fundament was provided by the Verordnung über die Mehrwertsteuer (aMWSTV – VAT Ordinance). It was an independent legislative ordinance (directly) based on the federal constitution. As to its content the ordinance governed the most important areas that a VAT Law needs to cover.
This ordinance was replaced on 1 January 2001 by the Mehrwertsteuergesetz (aMWSTG – VAT Law). Simultaneously the Federal Council issued the Mehrwertsteuerverordnung (aMWSTGV). Considerable political pressure resulted mid-2006 in the so-called “pragmatic articles” (Art. 15a and 45a aMWSTGV). These provisions had the objective of curbing the formalism of the Federal Tax Administration (FTA).
With the aim of significantly simplifying the law, of increasing legal certainty, of enhancing transparency and improving customer friendliness, on 1 January 2010 a new VAT Law (MWSTG) came into force. The ambitious plans of Ex-Federal Councillor Rudolf Merz to introduce a standard tax rate of 6.1% and to abolish most of the previous tax exemptions finally collapsed in Parliament at the end of 2011.
At the end of September 2014 the deadline for consultation on the partial revision of the MWSTG expired. The most important reform proposals are aimed at changes in tax liability, revisions of the excluded services and corrections to the acquisition tax. It is intended that the revised law will come into force in 2017, possibly already in 2016.
Development of the tax receipts
Since the introduction of VAT in 1995 the receipts and the number of taxpayers have moved only in one direction: upwards. This development is firstly the result of increasing the tax rates and secondly a reflection of the economic development.
In the first year VAT receipts amounted to about CHF 10.39 billion, by 2013 they had more than doubled, namely to CHF 22.56 billion. But the number of taxpayers also increased from 261,000 in January 1995 to 361,400 in May 2014.
The VAT statistics are also a reflection of the increasing economic linkage of Switzerland with foreign countries. While in 1995 tax exempt turnovers amounted to approx. CHF 240 billion, in 2012 the value of foreign turnovers had grown tenfold to CHF 2,385 billion. The excluded turnovers have not displayed the same constancy. They fluctuate enormously and in 2011 for example they fell from CHF 661 billion to CHF 361 billion. This heavy reduction probably reflects the easier option, which was introduced with the MWSTG 2010.
Development of court judgements
In 1997 the first Federal Court judgement concerned a question that is a recurring theme in a number of judgements: the distinction between turnovers, which are subject to the reduced rate or the normal rate. The Federal Court has decided that for home deliveries of pizzas the delivery of the pizza is “more important” than the pizza itself and that therefore the pizza (including delivery) is to be taxed at the normal rate.
Since then the Federal Court has issued an increasing number of judgements concerning VAT. During the last few years there have been about 30 judgements a year. Time and again the judgements concern discretionary assessments of taxi operators, restaurants or the horizontal profession. In an amusing judgement the Federal Court confirmed that, for making a discretionary assessment of a contact bar, resort can be made to the use of condoms and the consumption of champagne, if no accounts are kept. But also means of transport, such as aircraft or cars, occupy the Federal Court repeatedly.
For the preliminary court, the Federal Administrative Court, the number of complaints approved and referred back to the FTA for a new decision, demonstrates that seeking legal remedy can be very promising.
Switzerland can no longer be imagined without VAT. It is a supporting pillar for the tax revenues of the Federation and also in future will be repeatedly called on, when there are gaps to be filled.