Judgment on the Right to Input Tax Deduction for Demolition Costs of a Residential Development

Facts

A. AG (the Buyer) acquired a property from B. AG (the Seller) in November 2018, on which a factory facility was located. The Seller had initially leased the property to third parties before planning a residential development. The Buyer applied to the Federal Tax Administration (FTA) for an advance ruling on the right to input tax deduction for the planned demolition costs. The FTA issued a declaratory decision rejecting the input tax deduction. The Buyer filed a complaint, which was upheld by the Federal Administrative Court. The FTA then filed a complaint with the Federal Supreme Court.

Considerations

The Federal Supreme Court held that for the assessment of the right to input tax deduction for demolition costs, the planned future use of the property, and not its previous use, is decisive. Since the Buyer acquired the property to construct a residential development that will be…