Offsetting of VAT upon cessation of tax liability

With the input tax deduction, VAT paid by another company can be deducted. In principle, all VAT-liable companies can use this option, even unsuccessful ones. However, a case was judged differently by the Federal Administrative Court.

What are input taxes?

‍VAT is transferred as a general consumption and sales tax to the final consumer. In the value chain of a service or product, the affected company can deduct the VAT that the earlier involved company has already paid. This possibility is referred to as input tax deduction. All VAT-liable companies can make use of it. If the revenue from taxable services of a company is below 100,000 Fr., as may be the case with startups, it can voluntarily subject itself to the tax obligation and thus also deduct input taxes.

‍Subsequent demand for input taxes from the unsuccessful company

‍On April 26, 2018, the Federal Administrative Court ruled in a case concerning the input tax deduction. An architect's corporation, which was founded to realize an overbuilding, had deducted the input taxes over several years during the project development. Since the lack of a building permit made the realization of the project unrealistic, the corporation was deleted from the register of VAT-liable entities on September 30, 2013. The Federal Tax Administration (ESTV) saw this as a change of use, corrected the deducted taxes under self-consumption, and therefore demanded the deducted input taxes back. The affected parties denied the change of use and took their complaint to the Federal Administrative Court. They argued that the final demise of a real estate project does not constitute a change of use. The project had died and could not have been converted into a profitable subsequent activity.

The Federal Administrative Court saw it differently. It only considered that the project was still present at the time the company was deleted. It would still be listed in the company's accounting, which is why self-consumption applies. Moreover, after the deletion, the taxpayers had tried to sell the project to the owner of the building land, so the project cannot be considered dead. Thus, the input taxes must rightly be collected.

‍Tax declarations for companies made easy – with Taxea.ch

‍You can easily create your company's tax declaration using our tax app Taxea. Learn more about Taxea here www.taxea.ch