Circular No. 43 - Part 3: the delimitation criteria

Circular No. 43 of the Federal Tax Administration regulates when a donation in the context of prizes, honors, awards, scholarships, and funding contributions in the cultural, sports, and science sectors is tax-free and when it is not. Findea presents the relevant differentiation criteria.

The Meeting

‍Generally, all recurring and one-time earnings are subject to direct federal tax, according to Art. 16 para. 1 DBG. However, if it concerns a donation within the framework of prizes, honors, awards, scholarships, and funding contributions in the cultural, sports, and science sectors, it may be that these are special cases according to Art. 24 lit. a and d DBG, which exempt these donations from direct federal tax (see Part 2). Specifically, prizes, honors, and awards can under certain circumstances also be classified as a donation, which according to Art. 24 lit. a DBG is exempt from direct federal tax. A donation occurs when an asset or part of an asset is transferred to a gifted person without the gifted person having to provide or complete a consideration. This means that it also cannot be a subsequent remuneration for work or a work.Art. 24 lit. d DBG exempts support from public or private funds from direct federal tax. This can include scholarships or funding contributions. To actually be tax-exempt, these services must meet the following three criteria cumulatively:

1. The person who receives the service must be in need (Neediness);
2. The private or public law institution provides the service with a support intention (Support);
3. It must be a gratuitous service. Accordingly, the receiving person cannot be compelled to provide a consideration (Gratuitousness).

The first criterion, neediness, is assessed based on the federal law on supplementary benefits for old-age, survivors', and disability insurance calculated subsistence level. If a part of the donation exceeds this subsistence level, then this portion is fully taxable.

The intent to support is affirmed when the private or public institution directs its services to needy people so that their minimal livelihood is secured.Under Gratuitousness, the 3rd criterion, it is understood that no counterperformance is required. However, a counterperformance is very quickly assumed. For example, a counterperformance is assumed when a student who must regularly report to the institution within the framework of a scholarship.

However, the specific classification is carried out individually in each case. In doing so, all circumstances are taken into account, including the regulations and/or statutes of the institutions providing the service.

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