Transitional Legal Treatment of Leasing Contracts in the Transition from Goods and Services Tax to Value-Added Tax

Facts

In a letter dated March 10, 1995, X.-Leasing AG and 28 other leasing companies requested a declaratory decision from the Federal Tax Administration on the tax treatment of leasing contracts in the transition from the Goods and Services Tax to the Value-Added Tax. The Federal Tax Administration rejected the requests, whereupon the leasing companies filed an appeal with the Federal Tax Appeal Commission. The latter partially upheld the appeal and made various findings on the taxation of leasing transactions.

Both the Federal Tax Administration and the leasing companies then filed administrative court appeals with the Federal Supreme Court.

Considerations

The Federal Supreme Court dismissed the appeal of the leasing companies and partially upheld that of the Federal Tax Administration. It concluded that the transitional arrangement for rental and leasing contracts enacted by the Federal Council cannot be deemed unconstitutional.

The Federal Supreme Court stated that the Federal Council has a relatively wide margin of discretion in shaping the transitional law. Art. 8 Para. 3 of the Transitional Provisions of the Federal Constitution does not require the Federal Council to provide for the relief from the Goods and Services Tax not only for goods for resale and use as raw materials, but also for other goods in the event of a system change.

The transitional provisions of the Value-Added Tax Ordinance, in particular Art. 83 Para. 3, Art. 84 Para. 4 and 6, and Art…