English translation of Article 31 of the Swiss VAT Act 2010

This page contains an English translation of the below Article of the revised Swiss VATA 2010 and is part of a web based Swiss VATA 2010 commentary published in German. Should you require qualified written legal advice on cross-border transactions potentially triggering Swiss VAT  from a Swiss VAT lawyer please do not hesitate to contact: Harun Can

Article 31 of the Swiss VAT Act 2010

Own use 
  1. If the conditions for input tax deduction are subsequently not fulfilled (own use), the input tax deduction must be corrected at the point in time at which the conditions are no longer fulfilled. The input tax previously deducted, including the parts corrected as a subsequent input tax deduction, must be repaid. 

  2. Own use occurs in particular where the taxable person withdraws goods or services permanently or temporarily from his business, provided that on procurement or contribution of the whole or of its components he made an input tax deduction or procured the goods or services under the notification procedure according to Article 38 which: 

    a. he uses outside his business activity, in particular for private purposes; 
    b. he uses for a business activity which does not entitle him to make the input tax deduction under Article 29 paragraph 1; 
    c. he transfers goods or services without consideration, and without a business reason; in the case of gifts of up to 500 Swiss francs annually per person and advertising gifts and samples which are transferred with the intention of             creating taxable or tax-exempt turnovers, a business reason will be automatically presumed;
    d. on the cessation of tax liability are still subject to his right of disposal. 

  3. If in the period between the receipt of the supply and the non-fulfilment of the conditions for the input tax deduction, the good or service was used, the input tax deduction must be corrected in the amount of the fair market value of the good or the service. To determine the fair value, the input tax amount is reduced for every year that has expired by 20% for movable goods and for services, and by 5% for immovable goods. The method of accounting is of no significance. The Federal Council may, in justified cases, stipulate departures from the depreciation rules. 

  4. If a good is used only temporarily outside the business activity or for a business activity not entitling the taxable person to make an input tax deduction, the input tax deduction must be corrected based on the amount of the tax that would be due on the amount of hire that an independent third person would charge therefor. 

Article 69 of the Swiss VAT Ordinance 2010 (Principles) clarifying Article 31 of the Swiss VAT Act 2010
1. The input tax deduction is to be corrected in full on goods and services not taken into use.

2. The input tax deduction is to be corrected on goods and services taken into use that are still present at the time the requirements are no longer fulfilled and have a fair market value. In the case of services in the fields of consulting, accounting,         staff recruitment, management and advertising, it is assumed they are exhausted already at the time of their acquisition and are no longer given.

3. In the case of self-manufactured goods, a flat rate surcharge of 33 per cent is to be levied for the use of the infrastructure on the input taxes on materials and any third party work on semi-finished goods. The effective proof of the input taxes           applicable to the use of the infrastructure is excluded.   

4. If the requirements for the input tax deduction are only partially fulfilled, the correction is to be undertaken to the degree the use no longer entitles the taxpayer to the input tax deduction.

Article 70 of the Swiss VAT Ordinance 2010 (Determination of the fair market value) clarifying Article 31 Section 3 of the Swiss VAT Act 2010

1. The fair market value is to be calculated on the basis of the acquisition cost; for real estate, excluding the value of the land and of value enhancing expenditures. Not to be considered are, however, the value maintenance expenditures. Value             maintenance expenditures are those that serve only to maintain the value of goods and their ability to function, in particular service, maintenance, operating, repair and renovation costs.

2. In determining the fair market value of goods and services taken into use, in the first tax period of use the loss in value is to be considered for the entire tax period. In the last  tax period not completed, on the other hand, no amortisation is to be     undertaken unless the change in use occurs on the last day of the tax period.

Article 71 of the Swiss VAT Ordinance 2010 (Major property renovations) clarifying Article 31 of the Swiss VAT Act 2010

If the renovation costs in a construction phase exceed in total 5 per cent of the insurance value of the building prior to renovation, the input tax deduction must be corrected by the total costs, regardless of whether the costs are for value enhancing or maintenance expenditures. 5th Section: De-taxation

Corresponding Article(s) of the EU VAT Directive (Recast) 2006/112/EC (as of January 2010)

Article 16 (1) of the EU VAT Directive
The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible.

However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration.