VAT assessment of the provision of vehicles to the managing director and his father

Facts

Parties and procedural participants:

The Federal Tax Administration (FTA), Main Division VAT (appellant) appealed against the judgment of the Federal Administrative Court, Division I dated 6 April 2022 (A-4191/2020, A-4193/2020), which partially annulled the FTA’s appeal decisions of 19 June 2020 and referred the matter back for reassessment.

Subject of the appeal: VAT treatment of input tax deductions for the acquisition and importation of ten vehicles and vehicle spare parts in the tax periods 2012 to 2016. The FTA argued that the vehicles were attributable to the non-business sphere of [A. AG] (taxpayer, respondent) and that the input tax deductions should therefore be reversed. The taxpayer disputed this and argued that the vehicles were intended for business purposes.

Factual representation:

The taxpayer is a Swiss stock corporation whose corporate purpose includes the design, manufacture and distribution of precision mechanical and electronic devices, as well as the trading and management of real estate. It is registered in the VAT register and has opted for its rental income. At the time of the decision (31 December 2016), the taxpayer owned ten vehicles, some of which were registered in the name of the managing director or his father. The vehicles were partially exhibited at trade fairs and similar events.

In 2017, the FTA conducted an audit and, with an assessment notice dated 6 April 2017 and two corrections dated 14 June 2017, demanded the reversal of input tax deductions amounting to a total of CHF 115,803.--, as the vehicles were attributed to the non-business sphere. The taxpayer contested these decisions. The FTA reduced the demand with decisions dated 11 January 2019 to CHF 40,504.-- (tax periods 2012–2015) and CHF 18,711.-- (tax period 2016), taking into account private use shares and the free provision of the vehicles to the managing director and his father. The taxpayer appealed against the FTA’s appeal decisions of 19 June 2020.

The Federal Administrative Court joined the proceedings and partially annulled the appeal decisions, finding that three of the ten vehicles had not been made available to the managing director or his father for private use. For the remaining seven vehicles, the FTA was instructed to correct the calculation of the rental consideration for the provision, as the estimate had not been made in accordance with due care.

Considerations

1. Procedural admissibility of the appeal:

The Federal Supreme Court examined the admissibility of the FTA’s appeal against the judgment of the Federal Administrative Court. The remittal decision of the Federal Administrative Court was qualified as an interlocutory decision within the meaning of Art. 93 FSCA, as it went beyond a purely technical implementation and contained substantive legal requirements. This resulted in an irreparable disadvantage for the FTA, which is why the appeal was admissible. In addition, the taxpayer was admitted as a respondent to file submissions pursuant to Art. 106 para. 2 FSCA, as it had not itself filed an appeal.

2. Correction of the facts by the Federal Supreme Court:

The Federal Supreme Court corrected the facts established by the lower court to the effect that all ten vehicles were in fact made available to the managing director and his father for private use. The lower court had only taken into account seven vehicles in this respect, although the vehicle registrations and other indicators (e.g. storage of the vehicles at the managing director’s premises, lack of use in the business sphere) pointed to private use of all vehicles. The estimate of the number of vehicles sold (fifteen instead of one) was also corrected, as the files clearly showed only one sale in the relevant period.

3. Qualification of the taxpayer’s activity as collector’s activity and not as trading activity:

The Federal Supreme Court confirmed the lower court’s legal assessment that the taxpayer did not carry out a VAT-relevant trading activity within the meaning of Art. 10 para. 1 VATA. The activity of the managing director as a collector of vehicle rarities (in particular vintage cars) was qualified as not sustainable and not aimed at generating income. The occasional sales (in particular one vehicle rarity in the relevant period) were not sufficient to constitute a business activity. Rather, it was a collector’s activity in which the vehicles were made available to the managing director for private use. This resulted in a…