VAT'S IMPORTANT - NEWSLETTER 2024 - 05
NEWSLETTER 2024 - 05
SUBSIDY OR PAYMENT FOR TAXABLE SERVICES
or
PROTECTION OF CONFIDENCE IN INFORMATION FROM THE FTA
An exciting ruling by the Federal Administrative Court (A-5345/2023 dated August 29, 2024) dealt with subsidies versus remuneration for taxable services. The question was whether the cantonal "hunting ground contributions" received by the taxpayer constituted a subsidy (according to the taxpayer) or remuneration for a taxable supply (according to the Swiss Federal Tax Authority (SFTA)). In addition, the taxpayer invoked the protection of legitimate expectations, as information on exactly the same facts had been provided by the FTA to the neighboring forest district.
FACTS OF THE CASE
The complainant (a forest district in the canton of Thurgau) argues that it received subsidies from the canton that were not subject to tax. These contributions were paid in compensation for public services. The canton had assigned sovereign tasks to the forest district, which was organized as a public corporation, for which the contributions were paid. The FTA, on the other hand, was of the opinion that the contributions paid by the canton constituted compensation for the performance of the assigned tasks. The forestry districts thus provided a service that was also sufficiently specific and had a consumable economic value as well as an intrinsic link to the remuneration. This constitutes a taxable supply.
JUDGMENT A-5345/2023 OF AUGUST 29, 2024
The court concludes that these contributions to the complainant relate to the performance of official duties in connection with the proper maintenance and use of the forest. These contributions also cover the performance of official duties by the forestry service and the provision of advice to forest owners and municipalities. The contributions thus represent a service in return or remuneration for these tasks. Therefore, the court comes to the conclusion that the complainant provides a specific service which is compensated by the contributions. It follows that the canton's contributions to the appellant are taxable.
It also becomes particularly interesting when the complainant refers to information provided by the FTA to a neighboring forest district: in 2014, the neighboring forest district had carried out VAT clarifications with the FTA. Among other things, the forest district wanted to know how the FTA classified the canton of Thurgau's forest district contributions under VAT law. In its reply at the time, the FTA came to the conclusion that the hunting ground contributions were considered a subsidy. The canton's hunting ground contributions were therefore not taxable. Subsequently, the Forestry Office of the Canton of Thurgau informed the forestry district authorities throughout the canton about the results of the VAT clarifications. On the basis of this letter from the Forestry Office, the complainant did not pay tax on the forest district contributions.
The court confirmed the view of the SFTA: the complainant could only rely on information if it had been issued in proceedings concerning him. It is undisputed that this is not the case here. Accordingly, the complainant could not derive anything in his favor from the information provided to another forestry district and the present complaint should therefore be dismissed.
WHAT DOES THIS MEAN FOR THE ENTREPRENEUR?
First of all, as always, it is good to qualify supplies upfront – if necessary with the Tax Authority. What is more important is the second part of the court decision: A written ruling is only valid for the party that asks for it – for no one else. It may be an indication how the Authority will answer the question; however, as we can see it in the decision, it is nothing more than an indication….
We at terraVAT are happy to support you at any time; we are always at your disposal.
With best regards
Your terraVAT Team
Sabrina Frey Dr. Florian Hanslik
Senior Consultant Founding Partner
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