Facts
The Federal Tax Administration (FTA) filed an appeal against a judgment of the Federal Administrative Court that confirmed the input tax deduction of the Real Estate Management Department of a municipality for the construction of a new municipal building. The FTA argued that the funds used for the construction should be classified as subsidies or other public law contributions pursuant to Art. 18 para. 2 lit. a VATA, which would result in a reduction of the input tax deduction under Art. 33 para. 2 VATA. The Federal Supreme Court dismissed the appeal. It concluded that the funds provided to the Real Estate Management Department for the construction of the municipal building do not constitute subsidies or public law contributions within the meaning of Art. 18 para. 2 lit. a VATA. Rather, they were internal fund flows within the same public authority, which do not constitute revenue or expenditure for the purposes of VAT. Therefore, such internal fund flows do not lead to a reduction of the input tax deduction under Art. 33 para. 2 VATA.Considerations
The Federal Supreme Court justified its decision as follows:Firstly, the case law establishes that subsidies and other public law contributions under Art. 18 para. 2 lit. a VATA are grants that constitute revenue for the recipient and over which they can dispose without having to grant participation rights to the grantor. However, in the case of internal fund flows within the same public authority, this revenue character is generally lacking.
Secondly, the Federal Supreme Court has previously held that the scope of the input tax deduction reduction under Art. 33 para. 2 VATA…