Transitional Treatment of Subscription Contracts upon the Introduction of Value-Added Tax

Facts

X AG is a publishing company that was registered as a wholesaler in the Goods and Services Tax register until the end of 1994 and has been subject to value-added tax since January 1, 1995. The company enters into subscription contracts for newspapers and magazines with its customers, the duration of which is usually one year, and for which it collects the fee in advance.

In a submission dated May 11, 1995, X AG requested the Federal Tax Administration to issue a declaratory decision that it is not subject to value-added tax in 1995 for deliveries and services based on subscription contracts it had concluded before October 1, 1994. The Federal Tax Administration and later the Federal Tax Appeal Commission dismissed the appeal.

By way of an administrative court appeal, X AG requested that the decision of the Federal Tax Appeal Commission be overturned and that it be determined that it does not owe value-added tax for contracts it concluded with its subscribers from January 1 to September 30, 1994 and which end or have ended after January 1, 1995.

Considerations

The Federal Supreme Court dismissed the appeal and confirmed the decision of the Federal Tax Appeal Commission. It stated that the Federal Tax Appeal Commission had not wrongly limited its cognition in reviewing the Value-Added Tax Ordinance. The Federal Council had a relatively wide scope of discretion in issuing the transitional provisions, which arose from Art. 8 para. 3 of the Federal Constitution.

The Federal Supreme Court examined whether the transitional provisions of the Value-Added Tax Ordinance in question violated constitutional principles such as the prohibition of retroactive tax legislation, the principle of good faith, the principle of equal treatment, or the principle of competition neutrality. It concluded that this was not the case.

In particular, the Federal Supreme Court saw no impermissible retroactivity in the fact that value-added tax is levied from January 1, 1995 for deliveries and services based on subscription contracts concluded before October 1, 1994. The…