Luxembourg to introduce VAT grouping

The Luxembourg Ministry of Finance announced last week that Luxembourg will introduce VAT grouping. The draft law will be submitted in the coming weeks to Parliament and the EU consultation process will be run in parallel. The date of entry into force must still be confirmed and it depends on the speed and the outcome of the legislative process. Bearing in mind the speed with which Luxembourg used to adopt new legislation, the VAT grouping provisions may already be available in autumn 2018.

On the above basis, Swiss businesses having subsidiaries in Luxembourg should undertake an assessment of the prospective VAT benefits of the VAT group in Luxembourg and the impact on the input VAT recovery position. Additionally, attention should be given to the Luxembourg companies having branches in the Member States of the European Union, which implemented the judgment of the Court of Justice of the European Union in Skandia, i.e. branches of a VAT grouped head offices are to be viewed as a separate taxable person with the consequence that any cost allocations between the VAT grouped head office and its branch are considered to be supplies for VAT purposes subject to VAT under the reverse charge. If the activity of the branch is to a greater extent exempt from VAT, the reverse charge VAT due on the cost allocations from the head office would lead to additional irrecoverable VAT. This is dependent on the way and the extent in which the Member State of the branch has implemented the Skandia provisions (e.g. Italy has recently fully implemented the Skandia judgment).

With the above in mind, it is now a good time to undertake an impact assessment (i.e. benefit of VAT grouping of the Luxembourg established companies vs the impact of this VAT grouping on the European branches (i.e. reverse charge VAT liability) because of the Skandia provisions) and explore options for the most beneficial set-up.

We are happy to advise you further on the above.

Contact Us

Dr. Niklaus Honauer
Partner, Indirect Taxes, Zürich
+41 58 792 59 42

Marcella Dzienisik
Senior Manager, VAT for financial services, Zürich
+41 58 792 49 38

Radio and TV fees for businesses from 1 January 2019

The Swiss people firmly rejected the ‘No Billag’ initiative on 4 March 2018. As a result, all VAT Register-listed businesses with an global turnover of more than CHF 500,000 will have to pay a business licence fee, regardless of whether or how much TV and radio they actually receive. As the fee is linked to inclusion in the VAT Register and the company’s global revenue is taken into consideration, the maximum fee of CHF 35,590 may vastly exceed the VAT incurred in Switzerland.

The business fee from 1 January 2019
From 1 January 2019 all VAT Register-listed businesses with a global turnover of more than CHF 500,000 must pay not only VAT to the FTA, but also the licence fee, as per Article 70 of the Radio and Television Act (RTVG). This is assessed according to the company’s global revenue, and the VAT classification is not a factor in the calculation. The fee is graded as follows:

The regulation on the RTVG sets out several options for corporations to reduce the licence fee. If several companies apply group taxation in the sense of Article 13 of the VAT Act, the aggregate turnover of the VAT group is used in the assessment, so that only one fee is payable. In addition, a corporate fee group may be constituted by combining at least 30 businesses. In this case, too, only one fee is payable based on the consolidated revenue. The same principles apply for formation, changes in the composition and dissolution of the group as for group taxation.

As the business levy is linked to inclusion in the VAT Register, foreign businesses are liable for the fee, even if they are registered in Switzerland without a presence (i.e. a permanent establishment) for installation services or for the rendering of electronic services. As the reference point is the global revenue, minimal revenue in Switzerland may still trigger the business fee up to the maximum of CHF 35,590. It would be welcome if the Federal Office of Communications (OFCOM) were to investigate whether exemptions from or restrictions on the duty to pay the fee should be created for such companies.

Summary and recommendation
As every business listed in the VAT Register is liable for the fee, corporate groups should now review their consolidation options and perhaps opt for group taxation, even if this has not hitherto proven beneficial from a VAT perspective.

For further information, please contact your personal PricewaterhouseCoopers consultant or our VAT specialists. We look forward to hearing from you.

Contact Us

Michaela Merz
Partner, Leader Indirect Taxes, Zurich
+41 58 792 44 29

Dr. Niklaus Honauer
Partner, Indirect Taxes, Zürich
+41 58 792 59 42

Julia Sailer
Director, Leader VAT Compliance, Zurich
+41 58 792 44 57


Change in VAT rates effective 1 January 2018?

For the first time in the history of Swiss value added tax, there may be a reduction in the standard and special VAT rates! Whether and to what extent a reduction will be introduced on 1 January 2018 is up to the Swiss voting population to decide on 24 September 2017 as part of the vote on the reform of Old-Age and Survivors In-surance (AHV).

Definitive consequences as at 31 December 2017

The temporary additional financing of disability insurance (IV) from VAT funds will come to an end on 31 December 2017. The three tax rates will automatically decrease as a result. However, an increase of 0.1% to finance the railway infrastructure (FABI) will also come into force on 1 January 2018. Taking both these effects into account, the tax rates as at 1 January 2018 would be as follows:

Standard rate:  7,7%
Special rate:  3,7%
Reduced rate: 2,5%

Possible consequences of the “Pensions 2020” reform programme

It is not yet known whether the standard and special tax rates will be subject to an additional increase for pension funding purposes as at 1 January 2018. If the voting population accepts the proposal put to the vote on 24 September 2017, the VAT rates will remain at their current levels.

Are you, your company and your accounting software ready for a change in tax rates?

If the voting population rejects the proposed reform of Old-Age and Survivors Insurance, VAT rates will be reduced from 1 January 2018. This will leave just over three months to prepare for the changeover. The following points will need to be taken into account if the tax rates are modified:

  • Tax codes in accounting software:
    New output and input tax codes will need to be introduced (standard rate: 7.7%, special rate: 3.8%).
  • Applicable tax rate:
    The date on which a service is provided is decisive for determining whether it should be invoiced at the current or new tax rates. Services provided before the end of 2017 should be invoiced at the current tax rates. If your company issues an invoice in December 2017 for a service that will not be provided until January 2018 or later, the new tax rate should be used.
    With regard to input tax, the following principle applies: “The tax that has actually been invoiced may be deducted”, even if the tax rate shown is incorrect.
  • Invoicing forms and templates will need to be modified
  • Consequences to be taken into account in contracts, offers, etc.:
    VAT must be indicated in contracts (either by specifying the tax rate as a percentage or by including the statement “plus statutory VAT”).

Conclusion and recommendations

If the increase in tax rates is rejected in the vote on 24 September 2017, there will only be a very short period of three months until the end of the year in which to implement all the necessary changes. Steps should be taken in advance, particularly with regard to IT system migration. Automatic booking processes and information printed on invoicing forms should be checked before 1 January 2018. In general, we advise against overwriting existing tax codes with the new rates. Instead, new tax codes should be entered with a new validity period.

For more information, please contact your personal advisor at PricewaterhouseCoopers or get in touch with our VAT specialists. We look for-ward to hearing from you!

FINSA and FINIA enter home stretch

Economic Affairs and Taxation Committee of the National Council (WAK-N) concludes consultations

The Economic Affairs and Taxation Committee of the National Council (WAK-N) has concluded its consultation on the Financial Services Act (FINSA) and the Financial Institutions Act (FINIA). This was communicated today in a media release. Accordingly, the bill will now be subject to consultation in the National Council in the fall session. As FINSA and FINIA have already been passed in the Council of States by the end of last year the bill now has to pass its last obstacle.

By and large the WAK-N conformed to the resolution of the Council of States in terms of content. Nevertheless, the WAK-N differed with the Council of States in certain points. With respect to the FINSA there were differences with respect to the conditions for the preparation of a prospectus, the liability for false details contained in the prospectus or the Key Information Document as well as the criminal provisions. With respect to the FINIA the WAK-N differed in particular as far as the provisions contained in the Annex are concerned. According to the resolution of the WAK-N the provision in the Banking Act (BA) contained in the Annex to FINIA should not be changed at all.

In certain points the members of the WAK-N could not reach an agreement. This concerned in particular the criminal provisions, the scope with respect to the insurance companies and the external asset managers.

The draft of the bill as resolved by the WAK-N will be available in due course.

Please do not hesitate to contact us.

Günther Dobrauz
Leader Legal FS Regulatory & Compliance Services
+41 58 792 14 97

Tina Balzli
Head Banking, Legal FS Regulatory and Compliance Services
+41 58 792 15 54

Simon Schären
PwC Legal FS Regulatory and Compliance Services
+41 58 792 14 63

Two reasons to celebrate

This is the 200th blog that I have published since I started in June 2012. And as I missed celebrating the 100th blog, I am doubling my celebrations. This is a good excuse, because recently we successfully defended before the Federal Administrative Court (A-5099/2055 dated 20 January 2016) our client’s standpoint that demolition costs entitle to input tax deduction.

Specifically the issue was whether the input tax deduction is permissible on demolition costs, if the property was used for taxable purposes (option leased) and the owner later realises on part of the plot a residential building. The Federal Tax Administration (FTA) wanted to rely on the future use and to refuse the input tax deduction (see also the blog dated 20 April 2015). We took the view that the demolition of the building ended the former taxable use and the input tax deduction therefore must be permissible. The Court in effect agreed with us and allowed the input tax deduction. However it argued that between the demolition of the factory and the buildings being constructed there is only a loose connection. The supplies and services drawn for the demolition of the factory were from a VAT aspect not in temporal or factual (or spatial) proximity to the new buildings and therefore the input tax deduction is given in full.

 Read the full story on our VATelse Blog.

The financial consequences of disobedience

The “Sonntagszeitung” published a week ago two interesting articles on VAT. They are based on information from the Federal Tax Administration (FTA), which up to now had not been published anywhere, but based on the Öffentlichkeitsgesetz (Freedom of Information Act SR 152.3) are in principle accessible to everyone. The articles concentrate – of wider public appeal – on the hospitality and erotic sectors. This blog has also commented on decisions, in which the number of condoms used has served as the measurement base. However, the FTA has supplied information covering all branches of the economy. The number of corrections and the amount of the additional charges, the debt enforcements and the fines have been listed in detail. If one combines this information with the VAT statistics already at my disposal, the result for 2013 looks as follows:

For the additional charges:



For debt enforcement procedures and fines:



The following conclusions can be drawn:

  • As a percentage of the tax paid on the turnover in this economic sector, the additional charges in property and residential are twice as high as in the Hotel and Restaurant industry and in finance and insurance. The lowest additional charges are in motor vehicles.
  • Measured by the number of cases the add-ons in finance and insurance and in property are the highest. In some years they amounted to CHF 50,000 per case.
  • The default risk for the FTA is highest in Hotels and Restaurants; over 5% of the tax had be debt enforced; in the motor vehicle industry – rather surprisingly – it is only 0.17%.
  • On the other hand in the motor vehicle business 1,360 fines were imposed; considerably more than in all other sectors. With an average of CHF 900 the fines are still moderate.
  • In the economic sectors investigated the VAT claims subject to debt enforcement amount for the years 2008 – 2013 to about CHF 400 Million each year.

With the build-up of the bureau of Investigation by the FTA it can be expected that in future the number and amount of the fines will increase. The annual reconciliation to correct errors in the VAT return therefore gains in importance in avoiding fines.

Read more on our VATelse blog.

pdf invoices are treated in the same way as paper invoices

Practitioners are frequently confronted with the question whether pdf invoices are permitted for input tax deduction. Businesses have answered the question for themselves in different ways. While some have adjusted their internal procedures, even gone as far as printing out the invoices and adding a receipt stamp, others have completely refused pdf invoices and forced the suppliers to issue a paper invoice. Up to now we have been unable to answer our clients’ question with a yes, although in practice we are not aware of any cases, in which the Federal Tax Administration (FTA) has rejected the input tax deduction because of a pdf invoice.

Art. 70 MWSTG on accounting and retention and Art. 81 Para. 3 MWSTG on the free consideration of evidence are at odds with one another. As a result Art. 122 MWSTV is also important; it recognises the equal evidential value of electronic data and information, if the following requirements are fulfilled:

  • Evidence of origin
  • Evidence of integrity
  • Non-repudiation of despatch

This has the consequence that the data must be unalterable (alternative: duty to record if data are changed). In addition at any time the origin of the electronic invoice must be clear (Where the invoice come from? Who provided the service?). It is easiest to evidence this by “advanced electronic signature” with a certificate of a certified provider. With the principle of free consideration of evidence it is not possible to solve every question of interpretation on accounting and retention.

But now, also in the FTA, there has been some movement on the issue and pdf invoices are treated in the same way as paper invoices if a detailed description of the procedure is available, which outlines the internal processes and controls in order to guarantee the integrity and authenticity of the incoming electronic invoices.

The following conclusion can be inferred:

If the incoming invoices have “advanced electronic signatures”, there is no risk in audits by the FTA. Without such signatures, the procedure for controlling the integrity and authenticity of the electronic documents must be on record in a detailed description of the process.

We are now there – electronic VAT reporting has arrived

After a test phase with four cantons the FTA is now launching electronic reporting for all taxpayers. Officially it is to start on 1 September. According to information from the FTA, registration is, however, already possible over the following link. The “FTA SuisseTax – Elektronische Mehrwertsteuerabrechnung”(FTA SuisseTax – Electronic VAT reporting) […]

Read more

Good representation is half the battle

With great satisfaction we can inform you about a positive Federal Court judgment published last week (2C_33/2014 judgment of 27 July 2015). After we had already obtained a positive judgment before the Federal Administrative Court for our client, the Federal Court has also supported our position and rejected the FTA’s appeal. Specifically the issue was whether […]

Read here the whole Blog