VAT: Gratuitous Supplies to Closely Related Companies, Third-Party Price Determination Using the Resale Price Method, and Assessment of Evidence to the Detriment of the Taxable Person

Facts

The appellant, a GmbH operating an architecture office, has been registered in the register of VAT-liable persons with the Swiss Federal Tax Administration (ESTV) since 1 April 2000 and uses the net tax rate method. It is represented by two managing partners with individual signing authority, B. and C.

Two further GmbHs, D. GmbH and E. GmbH, provide services in the real estate sector. Both have been liable for VAT since 26 November 2012 and likewise use the net tax rate method. D. GmbH is managed by B. as its sole shareholder and managing director, and E. GmbH by C. The companies are considered closely related persons within the meaning of Art. 24 para. 2 VATA in conjunction with Art. 3 let. h VATA.

On 11 September 2017 the ESTV conducted an audit of the appellant for the tax periods 2012-2015. By assessment notice of 5 December 2017 it set the tax liability at a total of CHF 427'139.-- and claimed a supplementary payment of CHF 34'645.--, plus default interest. The basis for this was unrecorded and untaxed supplies by the appellant to D. GmbH and E. GmbH. The appellant requested a reduction to CHF 1'221.60 and argued that it had not provided any supplies.

By a fully reasoned decision of 25 March 2019, the ESTV upheld its assessment. It stated that the two companies could not operate without personnel and movable assets. It calculated the third-party price on the basis of the reported turnover less a profit margin of 10% under the resale price method and applied the net tax rate of 6.1%.

The appellant lodged an objection and requested that the matter be forwarded as a direct appeal to the Federal Administrative Court. The Court dismissed the direct appeal by judgment of 20 April 2020 (A-2304/2019). It held that the appellant had provided VAT-relevant supplies without recording and taxing them, which would have triggered consideration between independent third parties.

By appeal in public law matters of 28 May 2020, the appellant requested that the lower court's judgment be set aside and the tax liability reduced to CHF 1'220.60. The ESTV requested dismissal. The lower court waived a response.

The subject matter of the dispute is whether the appellant provided supplies within the meaning of VAT law to the closely related companies for which an independent third party would have paid consideration, and how the third-party price is to be determined.

Considerations

The appeal is admissible as an appeal in public law matters against a judgment of the Federal Administrative Court concerning a fully reasoned decision of the ESTV that concludes the proceedings (Art. 82 let. a, Art. 86 para. 1 let. a, Art. 90 FSCA). The appellant has standing (Art. 89 para. 1 FSCA). The appeal is therefore admissible. The Federal Supreme Court reviews the violation of federal law (Art. 95 let. a FSCA) and bases its decision on the facts established by the lower court, unless a manifestly incorrect finding of facts or a violation of law within the meaning of Art. 97 para. 1 FSCA is raised (Art. 105 FSCA). Complaints of violation of fundamental rights are subject to the qualified duty to raise and substantiate them under Art. 106 para. 2 FSCA.

A VAT supply exchange requires a sufficient economic connection between performance and consideration (BGE 141 II 182 E. 3.3). Under Art. 24 para. 2 VATA, for supplies to closely related persons, the value agreed between independent third parties is deemed to be the consideration (principle of third-party comparability). Under the self-assessment principle, the ESTV bears the objective burden of proof for facts establishing the tax liability (Art. 79 VATA, Art. 8 CC).

In its assessment of the evidence, the Federal Supreme Court considers the lower court's view not manifestly incorrect. A minimal infrastructure is also required for purely intermediary services, which the appellant itself confirms with its new submission regarding the use of private computers and work spaces. Moreover, the ESTV demonstrated on the basis of documents that services, such as a feasibility study and a sale of an apartment, were in fact provided by the appellant. Viewed as a whole, the assessment of the evidence is not untenable, so the facts increasing the tax are deemed proven (Art. 97 para. 1 and Art. 105 para. 2 FSCA).

Regarding the determination of the…