Facts

Parties and participants:

  • Appellant: Federal Tax Administration (FTA)
  • Respondent: Swiss Foundation A. (Foundation), registered in the VAT register since 1 January 1995, with the purpose of early detection, promotion, training, care and social support of people with disabilities in Switzerland
  • Lower court: Federal Administrative Court (judgment of 14 May 2024)
  • Date of decision: 28 November 2024 (9C_363/2024)

Factual development:

  • 26 July 2010: The Foundation applies to the FTA for clarification of the scope of its entrepreneurial activity within the meaning of the new VAT Act (VATA) from 2010 onwards. It proposes a split of 40 % entrepreneurial activity (based on income from sales of goods, sponsorship, rental income, etc.) and 60 % non-entrepreneurial activity (donations, gifts, inheritances).
  • 29 July 2010: The FTA approves the Foundation’s approach and confirms in writing that input tax deduction may be made accordingly, provided that the circumstances at the Foundation remain unchanged and the legal basis does not change.
  • 7 November 2018: The Foundation requests confirmation from the FTA that, due to the restrictive interpretation of the principle of unity of the enterprise by the Federal Supreme Court, no non-entrepreneurial area can be identified. This is based on judgment 2C_781/2014 (BGE 141 II 199), which had assessed the FTA’s so-called 25/75 per cent practice as unlawful.
  • 23 January 2019: The FTA informs the Foundation that it has a non-entrepreneurial area (ideational purpose) and an entrepreneurial area (sales of auxiliary materials, revenue from supplies and services). Subsidies under the InvIA are assigned to the non-entrepreneurial area and do not lead to any reduction in input tax deduction.
  • 2 May 2019: The FTA reaffirms its position and confirms that subsidies are to be attributed to the non-entrepreneurial area.
  • 9 December 2019: The Foundation states that it continues to rely on the validity of the ruling of 29 July 2010 and accepts the 40 % split for entrepreneurial activity. It interrupts the statute of limitations for the year 2014 and claims input tax deduction.
  • 17 March 2020: The FTA announces a review for the tax periods 2014–2019.
  • 4 May–17 June 2020: Conduct of the review; on 17 June 2020, the FTA informs the Foundation of a provisional review result.
  • 27 May 2020: The FTA informs the Foundation that the ratios calculated in the 2010 ruling (40 % entrepreneurial area) were based on 2009 figures and that the legal basis had since changed. It does not approve the Foundation’s proposal.
  • 22 July 2020: The FTA makes corrections to input taxes in its favour amounting to a total of CHF 206,161 (CHF 141,679 for 2014–2018 and CHF 64,482 for 2019).
  • 13 July 2022: The FTA confirms its view in a ruling and maintains the corrections.
  • 15 September 2022: The Foundation files an objection and requests repayment of the amount paid under reservation of CHF 206,161 plus interest on compensation, as well as a determination of the tax claims for 2014–2019 at lower amounts. The FTA refers the objection as a leap appeal to the Federal Administrative Court.
  • 14 May 2024: The Federal Administrative Court upholds the appeal, sets aside the FTA’s ruling and refers the matter back for final settlement and calculation of interest on compensation.
  • 25 June 2024: The FTA files an appeal in public law matters with the Federal Supreme Court.

Considerations

The Federal Supreme Court examines in this case whether the FTA is entitled to revoke retroactively an information provided in 2010 pursuant to Art. 69 VATA and to adjust the Foundation’s tax calculations for the years 2014–2019 accordingly. The focus is on the principle of good faith (Art. 5 para. 3 and Art. 9 Cst.) and the protection of legitimate expectations in VAT law.

Protection of legitimate expectations and right to information pursuant to Art. 69 VATA: The Federal Supreme Court confirms that the right to information provided for in Art. 69 VATA is covered by the constitutional claim to protection of legitimate expectations. An information pursuant to Art. 69 VATA is binding on the FTA and the taxpayer, provided that it was given in respect of a specific factual situation, the authority was competent and the incorrectness of the information was not readily recognisable by the taxpayer. However, protection of legitimate expectations ceases to apply if the legal order changes between the time the information was given and the realisation of the factual situation. The decisive factor is whether there has been a change in the law or a change in the legal situation due to case law. A mere change in administrative practice or administrative guidelines is not sufficient to eliminate the protection of legitimate expectations.

No relevant change in the law: The FTA argues that the case law of the Federal Supreme Court (in particular BGE 141 II 199) and the subsequent change in practice by the FTA constitute a relevant change in the law that eliminates the protection of legitimate expectations. The…