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Claiming Input Tax When No Further Tax Liability Exists

The instrument of input tax deduction makes it possible for companies to deduct the value added tax that has already been paid by someone else. This can also be beneficial to unsuccessful companies. In one case, however, the Federal Administrative Court saw it differently.

What is Input Tax?

As a general consumption tax, value added tax is levied on end consumers. Throughout the value chains of services and products, eligible companies can deduct the value added tax that has already been paid by those who had dealt with it before. Input tax deduction is meant here. All companies that are subject to value added tax can benefit from that. If a company’s revenues from taxable services are below 100,000 Swiss francs, as is the case, for example, with start-ups, it can voluntarily get registered as a VAT payer and thus also deduct input tax.

Claiming Input Tax by Unsuccessful Companies

On 26 April 2018 the Federal Administrative Court resolved a case regarding input tax. An architect’s public limited company, which had been founded to complete a specific building project, had been deducting input tax for a number of project development years. Due to the lack of a building permit, the project had turned out to be non-viable, so on 30 September 2013 the company had been deleted from the VAT payer register. The Swiss Federal Tax Administration found it to be a change of use, so it reclassified the deducted tax as a benefit in kind and claimed it back. The affected denied having changed use and took their complaint to the Federal Administrative Court. They argued that the final collapse of a development project should not be deemed a change of use. Their project had been dead, and it had not been possible to convert it into any profitable follow-up activity.

The Federal Administrative Court saw that differently. It based its argument on the fact that the project had still existed when the company had been deleted. It had been recorded in the company’s books so it should be deemed as a benefit in kind. Furthermore, after the company had been deleted the taxpayers had been trying to sell the project to the building land’s owner, so the project could not be regarded as dead. The input tax had rightly to be claimed back.

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