Since the introduction of the current VAT law in 2010, the possibilities to register new taxpayers has been broadened (for example, for holding companies).

More recently, the Swiss VAT division has developed a new practice trying to exclude some taxpayers or some departments of businesses from VAT registration.

According to this practice, an entrepreneur is not allowed to register as a taxpayer when it is reasonable foreseeable that the total turnover of the entrepreneur will not be covered by at least 25 percent of turnover resulting from supplies. This implies that if more than 75 percent of the total turnover results from other types of revenues (subsidies, gifts, etc.), the tax authorities could deny the registration.

In addition, if an entrepreneur is registered as a VAT taxpayer, the tax authorities could exclude some departments or activities from the “domains” which are covered by the VAT registration. The “domains” are the activities or departments which may be recognised as separate activities from an economic point of view (for example, a shop managed by a not-for-profit institution). Within this context, if an entrepreneur manages several different businesses, the tax administration could limit the VAT registration to some activities only.

The risk with this last practice is that some activities which serve the general business purpose of the company but which do not generate any turnover (e.g., the R&D department of a company) could be excluded from VAT registration and could be prevented from claiming back an input tax deduction.

We do not agree with the criteria setting a 25 percent limit in the matter of financing of the activities. All taxpayers should be treated equally and the registration should not be dependent on the financing structure of the business. In addition, there is no legal basis for proceeding with a limitation between various departments or activities of a taxpayer, accepting to register only a part of a legal structure. This practice is also in contradiction with previous court cases, such as when the courts concluded that if a taxpayer conducts two different activities, these activities shall be considered together for VAT registration (JAAC 70.8).

This new practice will probably have to be amended or will have to evolve in the future.