Switzerland publishes draft practice on VAT succession for asset deals
Romy Müller and Matthias Höhn of Deloitte take a closer look at draft guidance issued by the Swiss tax authorities on VAT succession in the frame of an asset deal.
The Swiss Federal Tax Administration (SFTA) has reacted to the Federal Court decision dated February 21 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 the said transfer takes place between closely related parties.
According to a Federal Court decision (BGE 146 II 73 dated February 21 2020), a partial VAT succession according to Article 16 paragraph 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. It is important to note that joint liability between transferor and transferee according to Article 15 paragraph 1 Cap d Swiss VATL covers three years, whereas the usual VAT limitation period covers five years. Thus, the transferee will remain being solely responsible for two years.
The SFTA has published a first (not yet binding) draft of its intended practice to implement the Federal Court decision on VAT succession for asset deals.
Whereas the transfer of an entirety of a business always creates a VAT succession according to Article 16 paragraph 2 Swiss VATL, the anticipated practice suggests that for a transfer of an independent part of a business tax succession, this only applies in cases when a transfer happens between closely related parties (Article 3 Cap h Swiss VATL). As a consequence thereof, VAT succession seems to excluded in cases 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 cases of assets deals, it is therefore crucial to evaluate the VAT risks in the frame of a due diligence exercise, both for the transferor and the transferee.