Insurance premium payments are, as a rule, subject to 5% stamp duty (Articles 21 and 24 of the Stamp Duty Act of June 27 1973, as amended). Article 22 of the act lists a number of exemptions, including credit insurance, provided that the debtor of the insured claim is domiciled abroad. In its longstanding practice, the Federal Tax Administration has granted the exemption only to the extent that the risk insured is the foreign debtor's insolvency for (purely) economic reasons, and not, for example, the debtor's non-payment due to political reasons. In a leading case the Supreme Court has now put an end to this practice.(1)
A non-Swiss insurer was ordered by the administration to pay 5% stamp duty on credit insurance premiums which it received from Swiss insureds. At issue were six policies covering the del credere risk - that is, the risk that the goods delivered and/or manufactured by the Swiss policy holders were not paid by their contract partners, which in this case were all domiciled abroad. In addition to insuring the general risk of the debtor's insolvency, four of the six policies provided cover for the risk of non-payment due to political reasons, while the other two offered protection for manufacturing costs. Having been denied the exemption by both the administration and the Federal Administrative Court, the insurer lodged an appeal with the Supreme Court.
The court accepted the administration's view, which was not contested by the insurer, that the exemptions referred to in Article 22(l) of the act concerned exclusively property insurance (eg, insurance against fire, theft, water damage) in which the insured property was located outside Switzerland, and that the mentioning of credit insurance started from the premise that the insured property in this type of insurance was – albeit of an intangible nature – the debtor's contractual payment obligation. It also agreed with the administration's view that Article 22(l) does not apply in cases of so-called wealth insurance, in which not one or several individual pieces of property, but the aggregate wealth of an insured is covered.
However, the Supreme Court rejected the reasoning of the administration and the Federal Administrative Court, which arrived at the somewhat peculiar conclusion that the nature of credit insurance as property insurance would somehow change into wealth insurance if coverage were provided for political risks. The court acknowledged that the term 'political risks' is defined as non-payment or non-enforceability of an insured claim due to political circumstances, and made clear that credit insurance covering insolvency on the one hand and credit insurance covering political risks on the other do not differ with regard to the insured object or property, which in both cases is the insured claim. They differ only in the type of risk, which is of no relevance under the provision mentioned. The court then went on to examine the historical background of the exemption, as well as the legislature's intent, and showed that the decision of the lower instances could not be based thereon either. The court held that the exemption of Article 22(l) also applied to credit insurance which covers political risks (exclusively or in addition to insolvency).
With regard to the two policies that covered manufacturing costs, the administration and the Federal Administrative Court had argued that coverage for these costs (ie, costs that were necessarily incurred by the insured in connection with the production of the promised goods) were not tax exempt because the goods would be located and manufactured in Switzerland and not abroad. The Supreme Court also rejected this reasoning as erroneous and pointed out that it was not the goods that were insured, but the insured's claim or the debtor's payment obligation regarding the insured respectively. This payment obligation is generally located at the debtor's domicile (which was non-Swiss in all six cases).
The decisions of both the administration and the Federal Administrative Court appear to have been motivated in part by fiscal considerations. The Supreme Court dealt with the issues objectively and brought the discussion back to sound legal grounds. The difference between exempt and non-exempt turns on the question of whether that which is insured in a particular case is an individual claim, or whether it is the aggregate wealth (ie, the totality of assets, claims and liabilities) of the policyholder. An exemption is granted only in the former case, but not the latter (and only if the debtor has a non-Swiss domicile). It follows that, based on the same considerations, an exemption should also be available, for example, in the case of contract frustration indemnity and similar policies in which the individual contractual obligation is insured.
For further information on this topic please contact Stefan Knecht at BADERTSCHER Rechtsanwälte AG by telephone (+41 44 266 20 66), fax (+41 1 266 20 70) or email ([email protected]).