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Switzerland: “Intermediary services” and VAT; implications for financial services sector

Switzerland: “Intermediary services” and VAT

The Federal Supreme Court of Switzerland in late August 2019 released a long-awaited, key decision on the value added tax (VAT) treatment of “intermediary services” by Swiss institutions, and confirmed that a direct proxy is no longer mandatory under the new Swiss VAT law (as effective since 2010).


Related content

Read the decision BGE 2C_943/2017, 17 July 2019 (German)


Under prior Swiss VAT law (as in effect through 2009), a “proxy” (defined as a power of attorney to act for and on behalf of a client) was required in order for the associated services to qualify as VAT-exempt intermediary services.

Changes to the Swiss VAT law (effective 1 January 2010) established a new process, by which the Swiss VAT authority announced that a proxy was no longer required for VAT-exempt intermediary services (despite the fact that there had been no relevant change to the statutory language concerning this matter). This change in practice, but without relevant change in the law, resulted in some uncertainty concerning the appropriate VAT treatment.

Court decision clarifies VAT treatment

In the case before the Federal Supreme Court, an unregulated Swiss company was engaged by a client to seek potential investors for the purchase of securities, and to negotiate the contract terms based on model agreements that have been drafted with the client. The Swiss company was not permitted to conclude the contracts—rather, this was a matter to be conducted by the client and the investor (in other words, the Swiss company had no direct proxy). The Swiss company received a volume-based commission for its services.

The high court confirmed that the commission income received by the Swiss company satisfied the requirements to be considered as VAT-exempt turnover, despite the fact that the Swiss entity did not explicitly act in the name of and on behalf of its client.

The decision, thus, confirms that direct proxy is no longer a mandatory requirement in order for a service to qualify as a Swiss VAT-exempt financial intermediary service. The decision also confirms that the new practice established by the Swiss VAT authority is correct, despite the lack of change to the relevant wording in the law. It was noted that the practice applied by the Swiss VAT authority of “acting as intermediary” was similar to the rules applied within the EU. 

KPMG observation

This case concerned an unregulated Swiss company, but the decision could be equally relevant for Swiss financial institutions. For example, commissions earned by a Swiss broker performing broker services for (institutional) clients could be exempt from VAT when the broker submits the trade orders to another party (for example, the broker’s foreign parent) for processing, in return for the commission (or cost-plus remuneration). It appears that these types of commission would qualify as VAT-exempt.

The decision, thus, could have implications for the Swiss VAT treatment of commission received or paid with regard to acting as an intermediary in the following financial services transactions:

  • The purchase and sale of shares, bonds, currencies, structured products, derivatives and similar instruments
  • The conclusion of financing transactions such as loans, bonds, notes, etc.
  • The issuance of guarantees, letter of comfort, pledges and similar items

On the other hand, there appear to be other types of intermediary services within the financial services industry that would not be affected by the decision, such as regulated fund distribution services and finder’s fees within the discretionary wealth management offerings.

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