100 Million import VAT adjustment of Swiss Customs affirmed by the Swiss Federal Administrative Court
Customs Flash – Nr. 01 - 2017
In the court decision A-2675/2016 dated 25 October 2016, the Swiss Federal Administrative Court decided in favour of the Swiss Federal Customs Administration (SFCA) concerning an import VAT adjustment of more than CHF 100’000’000 and late payment interest of CHF 924’854.25 for imports that occurred between 2009 and 2014.
The court backed the application of the deductive method but did not address whether the SFCA had created a legally non-existent distinction between a domestic and non-domestic importer.
Company A is the non-Swiss established purchasing company of the international C group. Company A is Swiss VAT registered. Company C is the local Swiss sales company of the C group.
The criminal investigation team of the Swiss Federal Customs Administration (SFCA) discovered that the import VAT value for imports in Switzerland that took place between 2009 and 2014 was based on the invoice from the foreign supplier to company A rather than the fair market value. Usually, goods are imported in fulfilment of a sales or commission transaction, the import VAT value in Switzerland is therefore calculated on the remuneration (Swiss VAT Law article 54 paragraph 1 letter b). In the case at hand however, company A failed to prove a direct supply from their foreign vendor. The SFCA therefore concluded that company A had transported their own goods to Switzerland and as such were required to declare the fair market value as the import value. The SFCA further held that the sales price from the foreign supplier to company A plus transportation and transport insurance cost doesn’t resemble the fair market price at the time of importation. The SFCA also argued that Company A factually arranged the transport to Switzerland and therefore the goods were already received by Company A outside of the Swiss customs territory. The SFCA concluded that the fair market price should be calculated based on the deductive method, in this case by deducting 10% from the domestic sales price to Company C. The deductive method is also mentioned in the VAT info 06 of the Swiss Federal Tax Administration. This practical interpretation has now been affirmed by the Swiss Federal Administrative Court.
Interpretation of the court decision
In the Court decision, the organization of the transport to Switzerland and the transition of economic disposal were predominantly mentioned as decisive factors that the importation was not based on a sales transaction. The court decision also mentions parts of the criminal investigation team’s report, which contains several interviews with logistics and tax responsible of company A and the C group.
The Federal Administrative Court agreed that the import value has to represent the fair market value by the time of the importation of the goods and supported the application of the deductive method. The Court however deliberately left open the question as to whether the practice of the SFCA creates a legally non-existing distinction between established and non-established importers in Switzerland. With regard to the late payment interest, the court argued that the exemption according to article 87 paragraph 2 of the Swiss VAT law did not apply because the Administrative Court concluded that there was no proof of an error on the authorities’ side. The Administrative Court disagreed with the argument that the import customs office failed to challenge the declared import VAT value while challenging other aspects such as HS Tariff number and preferential proof of origin in previous imports.
According to our knowledge an appeal against the decision with the Swiss Federal Court was lodged.
What does this mean for you?
Companies that are importing into the Swiss customs territory based on suppliers invoices and purchase value while organizing the transport to the Swiss Customer and having economic disposal over the goods prior to the import might have to adjust their import VAT valuation to the deductive method (sales price to Customer minus 10%).
What to do?
We recommend companies with similar supply chains to assess the potential impacts of the court decision. Our VAT and Customs experts are at your disposal in case of any questions.
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