How 20% becomes 50% or restriction of the private use deduction for VAT purposes

Since 1.1.2010 employees are no longer related persons for VAT purposes. For supplies to employees in principle the consideration paid is definitive for VAT. If an employee receives a supply free of consideration, VAT is therefore not payable. Supplies by the employer to the staff, which have to be declared in the salary certificate, are, however, deemed to be rendered against consideration and tax is to be calculated on the amount, which applies also for direct taxes (Art. 47 VAT Ordinance).

As part of a revision the FTA has stated as follows: “Decisive is whether the supply would have to be declared in the salary certificate and not whether it is in fact declared. If the Cantonal Tax Administration waives an add-on, (…) this does not alter the fact that the relevant supply is to be calculated on the amount that is in fact applicable for the salary certificate”. The FTA therefore adopts its own approach for VAT. In the specific case it fixed the custody charges, which were not charged to the employees, at 50 % of the market value. The practice of 20% of the market price, which applied under the old VAT Law until the end of 2009, is in the view of the FTA no longer applicable.

On 19 February 2015 the FTA also published a draft of MWST-Info 04, Privatanteile (Private use). This draft foresees a number of further restrictions. For example, the fixed rate of 0.8% of the purchase price for the satisfaction of the private use of company cars is to apply, only if the company car is used predominantly, i.e. more than 50%, for business travel. The FTA goes even further and states that the fixed rate or effective determination is not adequate even if it does not lead to a “a proper result”, which e.g. should be the case, if with the company car “above average costs” are generated.

Such a restriction is not appropriate. It also leads to great legal uncertainty. How is the taxpayer to discover whether the employee uses the company car predominantly for private purposes. This would be possible, only if for every company car a logbook were kept.

The direct tax practice should therefore be continued. For VAT purposes the FTA should diverge from this only in cases of abuse.