The Swiss Federal Tax Administration (SFTA) has reacted to the Federal Court decision dated 21 February 2020 ruling out that there is a (partial) VAT succession for Asset Deals, and published its intended practice in a first draft.
The outlined practice implies a very strict and lean interpretation of the Federal Court Case. According to this practice, a VAT succession in case of a transfer of a partial business only applies if said transfer takes place between closely related parties. Further details around the implementation of the practice, such as whether the SFTA intends to audit the VAT belongings of a transferred partial business at the transferee and based on what documentation, were not mentioned. This is to be figured out based on the general rules applicable.
According to a ground breaking Federal Court Decision (BGE 146 II 73 dated 21 February 2020) a partial VAT succession according to Art 16 Para 2 Swiss VATL for a transfer of a business or an independent part thereof is established between transferor and transferee. Until this Court decision, it was common ground that no VAT succession shall apply as long as the transferor continues to exist as regular taxpayer.
The VAT succession leads to a full liability of the transferee for all VAT risks and opportunities. As a consequence thereof the transferee takes over full historical VAT “belongings” deriving from the assets purchased for periods still open for assessment. Important to note is that joint liability between transferor and transferee according to Art 15 Para 1 Cap d Swiss VATL covers 3 years whereas the usual VAT limitation period covers 5 years. Thus, the transferee will remain being solely responsible for 2 years.
The SFTA has now published a first (not yet binding) draft of its intended practice to implement the Federal Court decision on VAT succession for asset deals: https://www.estv.admin.ch/estv/de/home/mehrwertsteuer/fachinformationen/publikationen/entwuerfe.html
Whereas the transfer of an entirety of a business creates always a VAT succession according to Art 16 Para 2 Swiss VATL the anticipated practice suggests that for a transfer of an independent part of a business tax succession only applies in case such transfer happens between closely related parties (Art 3 Cap h Swiss VATL). As a consequence thereof VAT succession seems to excluded in case of a) a transfer between parties that do not qualify as closely related or b) the assets involved in the transfer do not qualify as independent part of a business.
In case of assets deals it is crucial to evaluate the VAT risks in the frame of a due diligence exercise, both for the transferor and the transferee. Main areas to consider are:
- Ability to address historic VAT risks and the responsibility for these in the underlying asset purchase agreement,
- Ensure that sufficient level of information and documentation to defend the historic VAT position is transferred and / or made available beyond Closing,
- Influence deal-structure to limit the scale of VAT risks transferred and
- Assess whether the VAT position must be secured by way of binding ruling with the SFTA.
In case of transfer of assets that do not form an entire business it will be crucial to establish reasonable comfort to as whether a) involved parties do qualify as closely related and b) the assets transferred are to be seen as independent part of a business.
Last but not least the application of the VAT notification procedure according to Art 38 Swiss VATL must be correctly put into the picture. In case the notification procedure is applicable together with VAT succession, it is the view of the authors of this article that Art 38 Para 4 Swiss VATL should not have a significant stand alone meaning anymore. This because the assessment base and the associated base for input VAT corrections duties will in most of the cases already be included in the VAT succession.
Our Tax Due Diligence practice has developed an approach reasonably covering the latest developments. We would be happy to talk our clients through this development and possible actions.