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Traps of Swiss VAT refund

Inevitable drawbacks of Swiss VAT refund

VAT is neutral for normal entrepreneurs. At least that is what legislators and theory books proclaim……

Under Swiss VAT the reality looks different. Foreign companies that purchase goods or services in Switzerland, and in which scope they were correctly charged Swiss VAT, will not always be able to recover the paid VAT when they apply for Swiss VAT refund. Namely, specific rules of the Swiss VAT system are only or typically disadvantageous for foreign companies.

As examples can be mentioned:

  • VAT on tickets: cash-machine tickets, parking tickets, restaurant bills and similar bills that do not fulfill the invoice requirements do not entitle to refund in the scope of the Swiss VAT refund regulation for foreign companies. This is in blatant contrast with the rules on deduction of input VAT applicable for Swiss VAT registered companies, who can recover VAT on tickets that do not exceed a total price of CHF 400 and do not meet the invoice requirements. 
  • domestic supplies: foreign companies are not entitled to refund when they made domestic supplies during the period for which they claim refund, unless these domestic supplies qualify for a category of reverse-charge that does not block refund. Thus domestic supplies that do not fall under such a category, like all supplies of goods, block the refund. As a consequence, foreign companies that are deemed to make such not qualifying supplies would have no other option than to register for purposes of Swiss VAT if they would like to recover Swiss input VAT. However, a possible positive balance between the input and output VAT will often be offset by the  costs of VAT registration. Swiss based companies do not have these additional costs that could absorb the tax credit.
    According to the legal systematic of VAT, the question whether a company performs supplies that are subject to VAT and at what place depends on the output of that company. However, in the scope of the regulation of VAT refund for foreign companies the Swiss tax authorities base their evaluation of possible domestic supplies on qualification of the transactions embedded in the input invoices.
  • vicious circle rules: several transactional situations have been explicated by the Swiss tax authorities in administrative practice rules. Such rules are applied by the Swiss tax authorities as binding rules. Often Swiss suppliers are unaware of these rules, causing a wrong VAT treatment (i.e. charging Swiss VAT where it should not) and therefore a rejection of the refund request. Regularly, in such situations a foreign company is not able to claim directly from the Swiss supplier repayment of the paid VAT as rules underlying the proper VAT treatment had not been complied with (because none of the parties was aware of their applicability).
  • administrative obstacles: despite the fact that the foreign company mentions explicitely in the refund request form that costs are not recharged, often the Swiss tax authorities ask a separate written confirmation by the foreign company. The same applies to refund of Swiss input VAT on expenditures in connection with guarantee obligations. This kind of separate confirmations do not add anything; they just repeat what is already written in the refund request.
  • vacillated requirements:  often the Swiss tax authorities demand additional proof, for example balance sheets, proof of pro rata entitlement to deduction in the home country, contracts, concordance list of qualifications according to the own tax system and the Swiss VAT system, or similar documents. Regularly the Swiss tax authorities demand these documents in one of the official languages of Switzerland, despite the fact that normally these documents are only available in english and that english text versions are normally accepted by the Swiss tax authorities.

 

 

traps