What VAT rate applies to split products? The "Kinder Surprise" case

Ferrero Schweiz AG had to pay significant back taxes because it chose the wrong VAT rate for the import of Kinder Surprise eggs. This article explains what applies to the taxation of shared products.

In the legal dispute between the Federal Tax Administration and Miralbana AG, today Ferrero Schweiz AG, the Federal Court had to clarify which VAT rate is applied to shared products. Shared products are goods that cannot be clearly assigned to one of the three tax rates in the value-added tax law.

The initial situation – How many parts does a Kinder Surprise egg consist of?

Before importing Kinder Surprise eggs from abroad to Switzerland, Ferrero Schweiz AG consulted the Central Customs Authority, but not the Tax Administration, about which VAT rate applies to the product. The Central Customs Authority classified the surprise egg as a combination of goods, which should be invoiced at the reduced tax rate because the food component makes up more than 90 percent (today 70 percent). Five years later, shock ensued. The Federal Tax Administration informed Ferrero that it had wrongly calculated the VAT at the reduced rate and must pay the difference to the standard rate plus interest for delays.

The decision – The egg consists of three components

This classification is important because most products must pay value-added tax of 7.7 percent, while a reduced tax rate of 2.5 percent applies to food (Art. 25 VAT Act). For shared products, like the Kinder Surprise egg, the component theory according to Art. 19 Para. 2 VAT Act applies. The tax rate for the part of the product that makes up at least 70 percent based on qualitative and quantitative considerations applies. According to the decision of the Federal Court, a surprise egg consists of three parts: the chocolate, the toy, and the conveyance of a surprise effect. These components are inseparably connected. Because when buying an egg, the joy of the toy and the surprise is paramount, the normal VAT rate of 7.7 percent applies to the surprise egg.

The recommendation – Save costs by making inquiries

Ferrero Schweiz AG was able to cope with the repayment of the tax difference plus interest for the last 5 years. However, such a decision could mean financial ruin and thus bankruptcy for smaller companies. Should there be any doubts, it is therefore advisable to inquire in writing with the Central Customs Authority and the Federal Tax Administration beforehand about which VAT rate applies to a product. This way, one is optimally protected in case of a legal dispute.

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Source: BGer 2A.256/2003 // BGer 2A.182/2004