VAT treatment of negative interest rates

The increasing application of negative interest rates, which we have seen in recent months, has consequences that go far beyond the financial sector. Indeed, for many non-financial companies, the question sometimes arises as to how to deal with these revenues in terms of VAT.

There is no official statement from the FTA about negative interest income. In our opinion, it falls under the exception of Art. 21 para. 2 subpara. 19 e) and must be declared under line200 and 230 of the declaration form. The recipient of negative interest therefore does not have to pay any VAT on it. However, it can influence his ratio of input tax deduction. In principle, tax-exempt turnover reduces the right of input tax credit. There is a specific flat rate for the input tax reduction on (positive) interest income. It is unclear, whether this rate (0,02% of the interest income) can also be used for negative interest. We think, this should be the case, because the relevant article 66 VATO mentions “interest income” in general, without restriction to positive interest.

It should be noted that companies with a total income out of interest income and securities trading of less than CHF 10’000 or of less than 5% of the total turnover are not obliged to reduce their input tax.

Companies that pay negative interest should post the payments to an expense account, not as a reduction in income. In this way, they prevent the input tax reduction for positive interest from being unduly reduced.

VAT payers should pay attention to whether the FTA issues new instructions on the VAT treatment of negative interest and take the appropriate measures.

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Vanessa Cilio Senior Manager - Lausanne

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