Last week the Federal Court (2C_1115/2014 dated 29 August 2016) published a trailblazing judgement. In dispute was whether for a taxpayer – a group operating internationally – the purchase of seven works of art charged with input tax from the years 2007 to 2009 under the regime of the VAT law (MWSTG) in effect from 1.1.2010 was entitled to de-taxation of inputs. This question had been answered in the negative by the Federal Administrative Court – and before it also by the Federal Court in proceedings under the old VAT Law.
The success before the Federal Court is ultimately the result of changes in the law. The input tax deduction is conditional only on the fact that the input tax can be attributed to the commercial activity of the enterprise. The usage connection in force until 2009 belongs to the past.
The Federal Court has also rejected the opinion of the Federal Administrative Court, according to which in the area of art and culture the taxpayer displayed an “independent” activity, which cannot be described as commercial. In the view of the Federal Court in this connection the following applies:
- A “non-commercial “ area cannot readily be assumed.
- If a business is given, then by law a commercial area is given, to which all activities are to be attributed, which display a connection with the commercial activity.
- A non-commercial activity is characterised by the fact that this unit either generates no revenues from supplies and services at all or at least that they do not accrue in a sustainable way.
- It must be possible for this separation to be seen sufficiently clearly based on a separate activity which is clearly recognisable externally or on a distinct purpose, which differs from that of the business activity.
- If this separation is lacking, following the principle of the “unity of the enterprise” there is only one area, and that a commercial area.
- This must be decided from case to case.
In the specific case the Federal Court has also distinguished that the art collection served two purposes. Firstly, the collection is made available to the subsidiary companies (on loan) and secondly displayed at the head office in the exit area. On the loan the Federal Court states that this is taxable “and between related parties even when the invoicing is waived”.
On the own use the Federal Court concludes that the works of art fall within the framework of “general commercial activity”. Under the principle of unity of the enterprise it must be assumed that the art collection is in principle attributable to the enterprise. Thus it is clear that de-taxation of inputs is possible and that also in future all input taxes in connection with the art collection can be claimed.
The judgement demonstrates that the path to the Federal Court – even when under the old law a negative judgement has been handed down – can be worthwhile.