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Intermediation is now Swiss VAT exempt

Intermediation is now Swiss VAT exempt

Intermediation is now Swiss VAT exempt

Roland Reding | Director,

The Federal Supreme Court published the long awaited key decision on the Swiss VAT treatment of intermediation services last week. The Court confirmed that direct proxy is no longer mandatory under the new Swiss VAT law in force since 2010.


Last week, the Federal Supreme Court ("the Court") published the long awaited significant decision, ref. BGE 2C_943/2017, 17 July 2019 ("Decision"), regarding the Swiss VAT treatment of intermediation services by Swiss institutions.

By means of background, under the old Swiss VAT law and established practice in force until the end of 2009, a proxy (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 intermediation services.

With the introduction of the new Swiss VAT law from 1 January 2010, a new practice was established by the Swiss VAT Authority (set out in their published Brochure 14) stating that a proxy was no longer required to qualify as intermediation services (despite the fact that there had been no relevant change to the wording in the law concerning this matter).

This change in practice, but without relevant change in the law, has caused uncertainty in the market about the appropriate VAT treatment, until now.

The case at hand concerned an unregulated Swiss company which was contracted by a client to seek potential investors for the purchase of securities, and to negotiate the respective contractual terms based on model agreements which had been drawn up with the client. However, the Swiss company was not permitted to conclude the contracts; this was a matter for the client and the investor directly (i.e. the Swiss company had no direct proxy). The Swiss company received a volume-based commission for its services.

The Decision

The Court confirmed that the commission income received by the Swiss company met the requirements to be considered as VAT-exempt turnover, despite the fact that the Swiss entity did not explicitly act in the name and on the account of its client. This 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 Court’s Decision also confirms that the new practice established by the Swiss VAT Authority in Brochure 14 from 2010 is correct, despite the lack of change to the relevant wording in the law.

It is understood that one of the factors influencing the Court’s Decision was ensuring a level playing field with the EU, since the new practice applied by the Swiss VAT Authority of “acting as intermediary” is similar in Switzerland compared to the rules currently in the EU.

Who is affected by the Decision?

Whilst this case concerned an unregulated Swiss company, the Decision is equally relevant for Swiss financial institutions. For example, the following business set-up is clearly impacted by the Decision.

Brokerage / Introducing brokerage fees

A Swiss broker performs introducing broker services for (institutional) clients and submits the trade orders to another party (for example, the broker’s foreign parent) for processing, in return for a commission (or cost-plus remuneration). As a result of this Decision, such commission clearly qualifies as Swiss VAT-exempt (and no longer as taxable, respectively VAT-exempt-with-credit as in the past under the former VAT legislation and practice).

Who is NOT affected by the Decision?

Based on explicit legal provisions and longstanding practice, the following two types of businesses, which also refer to intermediary services within the financial services industry, are not affected by the Decision:

Regulated fund distribution

There are clear and separate legal provisions and an established practice with regard to regulated fund business. Commission for the distribution of units in collective investment funds is only VAT-exempt provided that: (1) the fund is a Swiss fund subject to regulatory provision or a non-Swiss fund which is authorised for public distribution in Switzerland; (2) the parties have the necessary regulatory authorisation to distribute funds; and (3) proper documentation is maintained.

Discretionary wealth management - Finder’s fees

In the discretionary wealth management context, finder’s fees (retrocessions / commissions) are typically paid by banks to external wealth managers for the introduction of clients and in return for the ongoing custody and brokerage business generated. Such finder’s fees are subject to VAT according to the established Swiss VAT practice, since the primary service of the wealth manager is deemed to be the discretionary wealth management, and the forwarding of buy/ sell instructions is not relevant in this context.

Action required?

The Decision could impact the Swiss VAT treatment of commission received or paid in particular for acting as an intermediary in the following financial services transactions: (1) the purchase and sale of shares, bonds, currencies, structured products, derivatives and the like; (2) the conclusion of financing transactions such as loans, bonds, notes, etc.; and (3) the issuance of guarantees, letter of comfort, pledges and the like.

Thus, we recommend to perform a proper Swiss VAT analysis if you are engaged by a client to find a contracting party for a financial services transaction as described above and your tasks include negotiating the contract terms for your client. This is especially important if you currently treat such commission as subject to Swiss VAT.

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