Upcoming partial revision of the Swiss VAT Law – Considerations for the financial sector

We continue our series of blogs (n°1, n°2, n°3, n°4, n°5 and n°6) on the upcoming partial revision of the Swiss VAT Law (VATL), which will come into force on the 1st of January 2025. In this blog, we are presenting some changes that are relevant for the financial sector.

Investment foundations

Investment foundations as per Art. 53g of the Occupational Pensions Act - OPA (LPP/BVG; RS 831.40) are established specifically to serve occupational pension plans. Their purpose is the collective investment and management of pension assets. They operate under the supervision of the Occupational Pension Supervisory Commission (CHS PP/ OAK BV).

The current VAT Law foresees a VAT exemption (without credit) for (1) the offering of shares in Swiss and foreign collective investment schemes within the meaning of the Collective Investment Scheme Act – CISA (LPCC/KAG; RS 951.31) and (2) the management of Swiss collective investment schemes by persons that manage or hold them, as well as the custodian banks and their agents within the meaning of CISA (Art. 21, par. 2, ciph. 19, let. f VATL).

Investment foundations are not covered by this VAT exemption. Considering their purpose, a new VAT exemption will be come into force on 1/01/2025 to align investment foundations with collective investment schemes and hence eliminate the VAT disadvantage for investments foundations.

According to the new Art. 21, par. 2, ciph. 19, let. g. VATL, (1) the offering of shares of investment groups of investment foundations within the meaning of the Occupational Pensions Act - OPA LPP/BVG; RS 831.40 and (2) the management of Investments groups by persons that manage or hold them, as well as the custodian banks and their agents within the meaning of OPA will be VAT exempt.

The above services being VAT exempt without credit, this change will negatively impact the input VAT recovery of the service providers but will positively impact these foundations (no VAT on the acquired services).

On 17 June 2024, the SFTA published a first draft of guidelines via changes notably to the Sector VAT Info 14 – Finance. According to the (limited) draft guidelines:

• agents are any persons to whom the foundations can – according to the applicable Laws - delegate tasks relating to the offering or the management of investments groups. The agent must prove the mandate.
• taxable services rendered against consideration to an investment foundation notably by banks (e.g., custody or asset management) are VAT exempt.
• the management of the endowment capital of the foundation or the management of the foundation itself are taxable unless VAT exempt according to Art. 21, par. 2, ciph. 18, let. c, first bullet VATL (i.e., social insurance).

Based on the draft guidelines, the term “management” of investment groups of investment foundations may be subject to interpretation, as it is not clear what is exactly covered and excluded (e.g., administrative tasks) and hence, whether one could somehow rely on the guidelines for the collective investment schemes as the purpose of the VAT exemption is that both are to be treated equally. An exhaustive list of services which are taxable vs. VAT exempt (similar to the VAT info sections on collective investment schemes) would provide for more clarity in our view and reduce (mis)interpretation in practice.

Given its draft state, it remains to be seen whether the guidelines will be expanded and/or clarified in the final version.

The application of the new VAT exemption may also trigger other challenges in practice notably the segregation of services linked to the foundations’ endowment capital (not covered by the VAT exemption) and those linked to its investment groups (covered by the VAT exemption).

Emission rights and certificates

Besides the usual financial services to traders (e.g., trade finance, guarantees), many financial institutions are, themselves, active in the trading sector (trading of commodities, gas and power, trading of emission certificates and rights, etc.).

Since October 2020, the transfer of emission rights, certificates and certificates of reduction of emissions, guarantees of origin of electricity and other rights, certificates and similar certificates is subject to VAT (previously VAT exempt without credit according to Art. 21 (2) ciph. 19 lit. e VATL). When transferred on a standalone basis, the place of supply is where the recipient is established or domiciled (Art. 8, par. 1 VATL). Currently, when the place of supply is on the Swiss territory, acquisition tax (reverse charge) is only due by the Swiss recipient when the supplier is abroad and is not VAT registered in Switzerland. On the contrary, a Swiss VAT registered supplier (established or not on the Swiss territory) must charge Swiss VAT to the Swiss recipient (no acquisition tax).

As from 1/01/2025, the transfer of such certificates and rights by suppliers which have their seat, domicile or a permanent establishment abroad or on the Swiss territory, shall be subject to (“domestic”) acquisition tax if this transfer is not excluded from the scope of the tax on transactions carried out on the Swiss territory under Art. 21, par. 2, ciph. 19, let. e. (new art. 45, par. 1, let. e. VATL).

Similarly, to the existing acquisition tax for the supply of electricity in cables, gas via the natural gas distribution network and district heating, the new Article does not specify that the supplier must not be Swiss VAT registered. However, it does not specify neither that the supplies must be carried out to Swiss VAT registered recipients contrary to the case for electricity, gas and heating.

On that basis and subject to potential SFTA guidelines, one could conclude that:

• acquisition tax will be due on certificates and rights acquired from foreign suppliers even if they are Swiss VAT registered
• “domestic” acquisition tax will be due on certificates and rights transferred between two Swiss established/domiciled parties
• when acquisition tax is applicable, it will be due by Swiss established/domiciled recipients that are registered for Swiss VAT or not (in the latter case the annual CHF 10k threshold as per Art. 45, par. 2, let. b VATL would apply).

Another point that remains unclear is how the VAT exemption (without credit) according to Art. 21, par. 2, ciph. 19, let. e. VATL will come into play (derivatives, certificates and rights disconnected from a supply of goods, depending on the nature of the certificates or the rights or of the underlying’s, etc.?).

Transactions with gold currencies and fine gold

The Partial Revision of the VATL foresees the integration of the provisions under Art. 44 VAT Ordinance (VATO) into Art. 23, par. 2 ciph. 12 VATL, without material changes. The transactions with gold currencies and fine gold will remain VAT exempt with credit.

As a result, Art. 44 and 61 VATO as well as Art. 107, par. 2 VATL will be struck, and various VAT info’s will be amended to reflect the integration of the VAT exemption into the VATL. In that respect, the SFTA published draft amendments which, besides rewordings, include notably a precision regarding the relevant customs tariffs for gold currencies and the deletion of the comment in VAT info 15 according to which the consideration from supplies of gold currencies and fine gold must be reported in box 280 of the VAT returns (according to Deloitte’s view, the nature of the transaction would rather point to box 220).

Upcoming changes

The upcoming changes regarding the investment foundations and the emission certificates/rights will definitely impact the relevant businesses which will have to adapt the VAT treatment as well as their invoicing process and systems where appropriate.

Although some guidelines are in still draft, we recommend businesses to already assess the impacts and potential impacts awaiting the final SFTA guidelines.

If you would like to discuss this topic, please reach out to our key contacts below.

Key contacts

Authors

• Romy Mueller - Partner, Indirect Tax
  
• Constant Dimitriou - Director, Indirect Tax 
• Steven Torres - Assistant Manager, Indirect Tax