<h4>Tax relief for non-profit organizations</h4>
<h4>Background: final VAT burden</h4>
The tax exemption for non-profit institutions (primarily foundations and associations) only covers income and capital tax, but not VAT. Since non-profit institutions are in many cases also not registered as taxpayers for VAT purposes, they cannot reclaim VAT charged to them as input tax. Consequently, any VAT results in a final tax burden for such non-profit institutions.
<h4>Service procurement from abroad</h4>
In recent years, there has been a strong professionalization of the non-profit sector, especially in the evaluation of projects to be funded, project coordination and accountability vis-à-vis donors and governmental authorities. If these service providers are located abroad (e.g. at the place of the funded activity) and if the services provided by them exceed an amount of CHF 10,000 per year, the non-profit institution as the recipient of the services is obliged to declare and pay VAT to the FTA (in the form of reverse charge VAT). If the service providers are located in Switzerland, they invoice VAT directly to the non-profit institution.
Example: «Charity Foundation», a non-profit organization based in Switzerland and not registered as a VAT taxpayer, looks at supporting aid projects in Somalia. For this purpose, «Charity Foundation» mandates UK based «Evaluation Ltd.» to evaluate various local aid projects with a view to efficiency, impact and sustainability, and to provide support after the start of the project. «Evaluation Ltd.» invoices services fees of CHF 280,000. Based on former administrative practice, «Charity Foundation» is required to declare VAT (in the form of reverse charge VAT) of CHF 21,560 on this amount and to remit such amount to the FTA. This is a tax cost of the Charity Foundation, which it has to finance entirely out of its donation funds.
<h4>Former administrative practice of the FTA</h4>
VAT is only payable where the place of supply is deemed to be in Swiss territory. Generally, the place-of-receipt principle (Empfängerortsprinzip) applies to general services. As a result, the place of supply for a Swiss recipient is Switzerland. However, as an exception to such general rule, the destination principle (Bestimmungslandprinzip) is relevant for services in the area of international development cooperation and humanitarian aid (article 8 para. 2 letter g Swiss VAT Act). Hence, the place of supply is at the destination of such aid (usually abroad). Until now, the FTA has interpreted this exception in a rather restrictive manner and thus levied VAT on a large number of services in the non-profit sector (cf. former paras. 5.3.1 and 5.3.2 of VAT Sector Info 22).
<h4>Change in practice since January 1, 2021</h4>
According to the amended practice of the FTA, the following prerequisites need to be met in order for services to fall within the scope of international development cooperation and humanitarian aid (art. 8 para. 2 letter g Swiss VAT Act):
1. The recipient meets the requirements for non-profit status within the meaning of article 56 letter g Federal Direct Tax Act and article 3 lit. j Swiss VAT Act;
2. the services provided to the recipient relate to or cover a specific project and are connected to a predefined region or country;
3. the project meets the definition of development cooperation and humanitarian aid according to the <a href="https://www.admin.ch/opc/de/classified-compilation/19770294/index.html">Federal Act on International Development Cooperation and Humanitarian Aid</a>;
4. the project must not directly or indirectly promote or support the entrepreneurial area of the founder or a recurring donor (e.g. opening up new sales markets, launching products or providing advertising services). In this respect, pure publicity services (naming of the founder or donor in a neutral form, possibly with a logo, cf. article 21 para. 2 no. 27 Swiss VAT Act) are not of relevance.
The amended section 5.3.3 of VAT Sector Info 22 (aid organizations, social welfare and charitable institutions) may be accessed <a href="https://www.gate.estv.admin.ch/mwst-webpublikationen/public/pages/sectorInfos/cipherDisplay.xhtml?componentId=1597043&amp;publicationId=1020197&amp;lang=de&amp;cipherKeyDate=01.01.2021&amp;invokedByChanges=true&amp;invokedByHistory=true">here.</a>
Subject to the aforementioned conditions, no Swiss VAT is payable for the respective services if the place of supply is abroad. As result of such change in the FTA&#8217;s administrative practice, «Charity Foundation», in the example mentioned above, would not have to account for any reverse charge VAT on the services it receives from «Evaluation Ltd.» In addition and subject to the aforementioned conditions, domestic service providers (e.g. strategy and legal advice as well as consulting services in connection with project evaluation or the project as such etc.) are covered as well and may now invoice their services free of VAT.
In particular, the rapidly growing field of «impact investing» and «angel investments» may also benefit from the change in the administrative practice. If, for any reasons, a return on investment results from a successful project, these funds do not flow back to the founder, but the non-profit institution may use such funds for other charitable projects. Hence, such activities do not spoil the application of prerequisite number 4. above. We recommend, however, to have this confirmed by the FTA on a case-by-case basis by way of a tax ruling request.
Finally (and probably most importantly at this stage), any reverse charge VAT already paid in the past can be reclaimed retroactively from the SFTA for the tax periods that are not yet time-barred (usually the last five years), subject, however, to the forgoing four conditions.
In summary, the change in the administrative practice represents a welcome and long-awaited relief for internationally active non-profit organizations based in Switzerland. As a result, non-profit organizations can now use their funds entirely for its charitable purposes.

Homburger Bulletin Tax

Change of practice in value added tax law (VAT)

<h4>Accounting treatment</h4>
For accounting purposes, a distinction is made between (i) events occurring after the balance sheet date, the cause of which already existed at the balance sheet date, and (ii) those events whose triggering event occurred after the balance sheet date. If the cause of an event exists at the balance sheet date, the event should be recognized in the financial statements of the previous financial year if the enterprise receives additional information after the balance sheet date. If the triggering cause does not occur until after the balance sheet date, the event is generally not recorded in the annual financial statements, but is required to be disclosed in the notes (Swiss Auditing Manual, Volume «Bookkeeping and Accounting» Edition 2014, IV.5.16.1).
<h4>EXPERTsuisse</h4>
According to EXPERTsuisse, the COVID-19 pandemic is a non-adjusting event after the balance sheet date, which is not required to be booked in the annual financial statements as of December 31, 2019. Notwithstanding the above, however, the voluntary booking of such provision should be possible: «Irrespective of the fact that the events triggered by COVID-19 are events after the balance sheet date, it is quite conceivable, due to the extraordinary situation with presumably strong financial consequences for the companies, that, within the scope of the possibilities offered by the Swiss Code of Obligations, additional value adjustments or the creation of provisions could be made as instruments to ensure the long-term prosperity of the company within the meaning of Art. 960a para. 4 OR as well as Art. 960e para. 3 item 4 OR» (EXPERTsuisse, Coronavirus &#8211; Implications for financial reporting according to OR, update of March 20, 2020). If the financial year corresponds to the calendar year, the auditors may possibly allow a provision for the economic consequences of COVID-19 in the financial statements as of December 31, 2019 if the above conditions are met. If the financial year does not correspond to the calendar year and ends e.g. in March 2020, a different assessment should be possible.
<h4>Tax law and administrative practice of the cantonal tax authorities</h4>
According to the principle of linkage between financial and tax accounting (Massgeblichkeitsprinzip), the commercial balance sheet forms the basis for determining the taxable profits. The basic prerequisite for a provision to be recognized by tax law is that it is recorded in accordance with commercial law. However, tax law provides for certain correction rules: If a provision is not commercially justified, the tax authorities can refuse to recognize it for tax purposes. This also applies in particular to provisions relating to other fiscal years than the one in scope. The tax authorities generally apply a strict periodicity principle (Periodizitätsprinzip). If the tax authorities deny the tax deduction for a provision, the tax balance sheet deviates from the commercial balance sheet. The non-recognition of provisions for tax purposes increases the taxable profit of the fiscal year in question and creates a taxed hidden reserve. If the enterprise reverses the provision in a later fiscal year resulting in income in the p&amp;l statements, such income is not subject to tax. These principles are also relevant to the formation of a provision in the 2019 financial statements in connection with COVID-19.
Most tax administrations in Switzerland are of the opinion that the formation of a special provision for the economic consequences of the COVID-19 pandemic in the 2019 financial statements does not relate to the 2019 period (periodenfremd) and is therefore not accepted for income tax purposes. However, certain cantons such as Aargau, Thurgau, Zug and Valais accept the formation of a «Corona special provision» in the 2019 annual financial statements. They apply different requirements:
Zug: The Canton of Zug accepts a provision for tax purposes in the financial statements up to a maximum of 50% of the income (excluding extraordinary factors such as capital gains on disposals and revaluation gains), but not exceeding CHF 500,000. The extraordinary provision created in 2019 must be reversed in the 2020 financial statements.
Thurgau: The provision recognised for tax purposes in the 2019 financial statements may not exceed 25% of the profit reported for the 2019 financial year before deduction of the provision, but may not exceed CHF 1 million.
Valais: All companies based in the canton of Valais that suffer directly or indirectly from the negative consequences of COVID-19 may form an extraordinary provision for the 2019 financial year. There is no statement regarding the maximum amount of this provision. Like in the Canton of Zug, such provision has to be reversed in the 2020 financial year.
Aargau: The canton of Aargau allows a special provision in the 2019 financial year up to 25% of the taxable income in 2019 (before tax and deduction of the provision) and a maximum amount of CHF 250,000. Like in the Canton of Zug, the special provision is to be reversed in the 2020 annual financial statements. Aargau is so far the only canton which states in its directive that the special provision is only permissible for cantonal and communal taxes, but not for the federal income taxes and for social security contributions of self-employed individuals.
Thus, most cantons are currently not prepared to accept a «Corona special provision» for tax purposes. The Canton of Schwyz, for example, explicitly made this statement public on its webpage.
We will monitor the developments and update this Bulletin as soon as other tax administrations have published a position on this topic.

Provisions for the economic consequences of COVID-19

Corporate / M&A

Competition

Regulatory

IP / IT

Data Protection

Financing and Investment Products

Avaloq_bw

On December 22, 2020, Avaloq Group (Avaloq), a Swiss-based global leader in digital banking solutions, core banking software and wealth management technology, announced that Japan-based NEC Corporation (NEC, TSE:6701) had completed its acquisition of Avaloq. In the transaction, NEC acquired all outstanding shares from the existing shareholders, which includes the founders, current and former employees as well as private equity firm Warburg Pincus, at an enterprise value exceeding CHF 2 bn.
Homburger acted as global transaction counsel to Avaloq and the majority shareholders. The Homburger team was led by partner Heinz Schärer and included partner David Oser, associates Philippe Baumann and Angela Oppliger and junior associate Cédric Berger (all Corporate / M&amp;A), partner Marcel Dietrich and associates Allegra Arnold and David Waldmeier (all Competition, Regulatory), partners Georg Rauber and Luca Dal Molin and associates Valentin Fluor and Kirsten Wesiak-Schmidt (all IP / IT and Data Protection), partner Jürg Frick and associate Pierina Janett-Seiler (both Financing and Investment Products), as well as associate Marc Vogelsang (Tax).

Homburger advised Avaloq Group and majority shareholders in the completion of NEC Corporation's acquisition of Avaloq Group

Capital Markets

Litigation

MCH Group

On December 22, 2020, MCH Group AG (MCH Group), a leading international live-marketing company with a comprehensive services network spanning the entire exhibition and event market, completed a recapitalization which improved its equity position by almost CHF 100 m, of which CHF 74.4 m cash proceeds out of a two-tranche capital increase and CHF 24.2 m by way of reduction of an outstanding loan from the Canton of Basel-Stadt.
The capital increases were underwritten by, among others, Lupa Systems LLC (Lupa), an independent private investment company controlled by James Murdoch as a new anchor shareholder. Following the completion of both capital increases, Lupa is expected to hold 32.32% of the shares in MCH Group, certain public sector shareholders will hold 33.34%, and the remaining public shareholders 34.34%.
In the context of the planned recapitalization, MCH Group settled all outstanding legal matters with LLB Swiss Investment AG, AMG Vermögensberatung and Erhard Lee. The shareholders affiliated with Erhard Lee have withdrawn all pending lawsuits before civil courts and supervisory authorities, and have supported the capital raise as implemented.
Homburger AG acted as legal counsel to MCH on this series of transactions and legal cases. The Homburger team was led by partners Hansjürg Appenzeller and Daniel Daeniker, and included lead associate Stefan Blunschi, associates Angela Oppliger and Anna Peter, and junior associates Daniel Madani, Cédric Berger and Oriana Schöni (all Corporate / M&amp;A, Capital Markets) as well as partner Roman Baechler and associate Simon Bachmann (both Litigation), partner Stefan Oesterhelt and associate Marc Vogelsang (both Tax), and partner Richard Stäuber (Competition).

Homburger advised MCH Group AG on a comprehensive recapitalization and settlement of outstanding legal matters

Liberty Global

On November 11, 2020, the all-cash public tender offer by UPC Schweiz GmbH (UPC), a subsidiary of Liberty Global plc, for all publicly held shares of Sunrise Communications Group AG (Sunrise) has been settled. UPC has acquired a 98% stake in Sunrise. The transaction values Sunrise’s equity at CHF 5.0 bn.
Homburger AG is advising Liberty Global on the transaction. The Homburger team is led by partners Daniel Daeniker and Daniel Hasler (Corporate / M&amp;A) and includes partners Richard Stäuber, Franz Hoffet (Competition, Regulatory), Stefan Oesterhelt (Tax), Luca Dal Molin (IP / IT) and Roman Baechler (Litigation), counsel Micha Fankhauser (Corporate / M&amp;A), associates Daniel Häusermann, Karin Mattle, Mirko Stiefel and Stefan Luginbühl (all Corporate / M&amp;A), Yves Bianchi, Ramin Gohari and Jonas J. Krull (Competition, Regulatory), David Borer and Pierina Janett-Seiler (Financing and Investment Products), Marc Vogelsang and Raphaël Fellay (both Tax), Kirsten Wesiak-Schmidt (IP / IT), as well as junior associates Cédric Berger, Géraldine Danuser, Daniel Madani (all Corporate / M&amp;A) and Urs Stürmer (Competition, Regulatory).

Marc
Vogelsang

Change of practice in value added tax law (VAT)

Provisions for the economic consequences of COVID-19

Homburger advised Avaloq Group and majority shareholders in the completion of NEC Corporation's acquisition of Avaloq Group

Homburger advised MCH Group AG on a comprehensive recapitalization and settlement of outstanding legal matters

Homburger advises Liberty Global on successful settlement of public tender offer for Sunrise

Ausweitung der Steuersukzession im Mehrwertsteuerrecht

§ 27 Amtshilfe von anderen Verwaltungsbehörden

§ 26 Amtshilfe zwischen Steuerbehörden

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Marc Vogelsang

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MarcVogelsang

Change of practice in value added tax law (VAT)

Provisions for the economic consequences of COVID-19

Homburger advised Avaloq Group and majority shareholders in the completion of NEC Corporation's acquisition of Avaloq Group

Homburger advised MCH Group AG on a comprehensive recapitalization and settlement of outstanding legal matters

Homburger advises Liberty Global on successful settlement of public tender offer for Sunrise

Ausweitung der Steuersukzession im Mehrwertsteuerrecht

§ 27 Amtshilfe von anderen Verwaltungsbehörden

§ 26 Amtshilfe zwischen Steuerbehörden

Join the Team

Marc Vogelsang

Career

Languages

Bar Registration

Teams

Marc
Vogelsang