Recent Federal Court decisions create potential input VAT deductions due to changed qualification of flow of funds within the same public administration - Tax and Legal blog


In two recent decisions, the Federal Court has clarified and partly redefined the concept of what should be considered as a subsidy or other public law contribution. It was especially clarified that the particular flow of funds within the same public administration does not fall into the definition of subsidy. In doing so, the Federal Court has partly overruled several years of administrative practice and has opened up the way for new input VAT deduction opportunities in public administrations.

To align with the decisions of the Federal Court, the Swiss Federal Tax Administration ("SFTA") has proposed to adapt the written guidelines in the draft VAT Info 19 on Public Bodies (“collectivités publiques”, “Gemeinwesen”). In principle the SFTA adapts its practice if the change is absolutely clear, notably to transpose a court decision or in case of legislative changes. All interested parties could take a position on this first draft until 3 October 2023.

The Federal Court rendered two decisions , which clarified the VAT treatment of flow of funds between departments of the same municipality. Historically, the SFTA treated such flow of funds as subsidies leading to an input VAT shortage (“reduction of the input VAT deduction”). In both cases, the Federal Court ruled in favour of the taxpayers, which were communes facing a similar situation: The SFTA had denied the input VAT deduction (several millions of CHF) in connection with the construction of a “public” building used to realize taxable turnover (rents subject to VAT).

The Federal Court has based the definition of a subsidy on the federal law definition applying the principle of the “unity of the tax system”. The main take away from these decisions are, thus, that 1) for the definition of a subsidy it is not decisive what the motivation for a flow of fund is and 2) that flow of funds between departments of the same municipality do not qualify as subsidy respectively other public law contributions. According to the Court, a subsidy presupposes that the financial means leave the municipality itself and are allocated to a beneficiary situated outside of the public body granting the funds.

Based on this new approach, the SFTA can no longer per se deny the input VAT deduction if the funds used to cover investments (e.g., constructions) originate from the same municipality (internal financing). On the other hand, if public funding is granted by a public body to a third party (or to another public body), it must still be considered as a subsidy giving rise to a proportional input VAT correction.

As a result of this new approach, public administrations can consider VAT paid on investments as recoverable and not as final cost. The new practice has immediate effect and could enable public bodies to recover VAT paid during past years.

All stakeholders in communes and cantons should examine whether they are impacted by these recent developments. Identifying potential deductible VAT represents an opportunity that should not be missing. Depending on the cases, VAT could be recovered on past non-statute barred years.

Public bodies should ensure proper VAT recovery on investments in line with the new practice, especially since they are manging public money, to avoid unnecessary tax loss. If you would like to further discuss this topic, please do reach out to our key contacts below.

Authors: Katharina Blattner & Mona Bouasria

[1] 2C_2/2022 on 22 November 2022 and 9C_736/2022 on 3 April 2023
[2] The limitation period for VAT is 5 years from the end of the tax period in which the tax claim was established.

 Key contacts


Romy Mueller - Partner, Indirect Tax

Romy is a partner, leading the Swiss Deloitte VAT team and is responsible for SAP Tax within Deloitte Switzerland. She has 15+ years experiences in advising Swiss and international companies in all VAT matters. Her focus is on international trade structures, M&A and post-merger integration.


Katharina Blattner_110

Katharina Blattner - Senior Manager, Indirect Tax

Katharina is an Indirect Tax (VAT) specialist in the Swiss Deloitte practice and has more than 17 years of experience in advisory. She helps Swiss and foreign companies manage their VAT risks and compliance and has extensive experience in cross-border sales, tax due diligence, VAT audits, and negotiating rulings with the VAT authorities. Her expertise and industry focus is on government and public sector organizations.



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