Input tax deduction for acquisition tax liability for foreign advisory services in the context of a share deal transaction

Facts

The taxpayer, a public limited company with its registered office in [U.] /TG, was entered in the commercial register on 26 May 2006 and registered in the register of domestic taxpayers on 1 April 2019. Until 11 December 2019, it operated under the name [B. AG] and accounted for tax using the cash receipts method.

The taxpayer held interests in the 2019 tax period in [C. AG] (registered office in [U.] /TG) and [D. GmbH] (registered office in [V.] /DE). As part of a joint transaction, the shareholders sold their shares to Advisors 1, 2 and 3, who were domiciled abroad and not registered in the register of domestic taxpayers. The contracts between the shareholders and the advisors are dated 12 June 2014 (Advisor 1), 10 November 2018 (Advisor 2) and 17 October 2018 (Advisor 3). The shares were sold with signing on 24 May 2019.

After completion of the project, the advisors invoiced their services. Advisor 1 issued an invoice on 28 May 2019 for a success fee of EUR 1,800,000, of which EUR 540,000 related to the taxpayer. Advisor 2 claimed EUR 1,500 and EUR 54,000 on 18 April 2019 and 3 June 2019 respectively, and Advisor 3 claimed EUR 680,000 and EUR 204,000 pro rata on 4 June 2019. The taxpayer declared these services in the second quarter of 2019 and attributed a value of CHF 921,805.87 to them, which at a standard tax rate of 7.7 % resulted in acquisition tax of CHF 70,979.05. The taxpayer deducted this amount as input tax, resulting in a credit balance of CHF 34.50.

The Federal Tax Administration (FTA) corrected the invoices such that it subsequently charged amounts of CHF 46,211.56 (Advisor 1), CHF 3,621.98 (Advisor 2), CHF 13,280.85 (Advisor 3) and CHF 423.39, totalling CHF 63,537.50. It justified this on the grounds that the services received before the taxpayer became subject to domestic tax liability (1 April 2019) did not entitle it to input tax deduction. The FTA distributed the fees pro rata temporis over the period from the respective contract conclusion to the cut-off date and from the cut-off date to 24 May 2019. Input tax deduction was only permitted for services rendered after the cut-off date.

The taxpayer contested the FTA’s ruling and filed an appeal with the Federal Administrative Court. The court dismissed the appeal with a judgment dated 27 December 2022. The taxpayer then filed an appeal in public law matters with the Federal Supreme Court and requested, in essence, that input tax deduction be permitted for services rendered after 1 April 2019. In the alternative, it sought input tax deduction on the fair value of the services not yet put to use or the qualification of the success fees as tax-exempt services.

Considerations

The Federal Supreme Court first examined whether the appeal met the admissibility requirements and found that it did. However, it declined to rule on the taxpayer’s request for a declaratory judgment as this was subsidiary to the performance requests and there was no legitimate interest in such a declaration. The Federal Supreme Court applied federal law ex officio and reviewed it with full cognition. It was not bound by the parties’ arguments or the lower court’s reasoning.

Regarding the VAT treatment of acquisition tax, the Federal Supreme Court held that the conditions for acquisition tax under Art. 45a VATA 2009 were met, as the services were provided by foreign companies whose place of supply was in Switzerland and the taxpayer was already subject to domestic tax liability. The taxpayer was entitled to deduct the declared acquisition tax as input tax, provided that the services related to a period in which it was already subject to domestic tax liability. The input tax deduction arose at the time of invoicing for the acquisition tax and could be claimed in the same tax period.

Regarding Advisor 1: The lower court assumed that the services were rendered evenly over the entire service period and distributed the fee pro rata temporis. The taxpayer contested this, arguing that the success fee as a completion fee only became due after closing. The Federal Supreme Court held that the taxpayer had not fulfilled its duty of cooperation adequately and had not submitted any evidence of uneven service provision. The lower court’s interpretation of the contract and…