VAT reform in Switzerland: new rules for the taxation of e-commerce platforms from 1 January 2025

This results in significant tax losses and creates unfair competition for Swiss businesses. In response to the OECD's recommendations, the European Union introduced the "e-commerce VAT package" in July 2021 to secure tax revenues and level the playing field.

Switzerland has also launched a project to reform Swiss VAT with the aim of making digital platforms taxable. Now that the project has been completed, major changes are expected from 1 January 2025.

Adapting Swiss VAT to digitalisation and the internationalisation of markets

The new revision of Swiss VAT complements the measures adopted in the previous revision in 2019, which mainly targeted foreign suppliers delivering to Switzerland. The new provisions are designed to step up the fight against fraud and ensure a level playing field between Swiss and foreign suppliers. In practice, these measures will improve the collection of Swiss VAT on supplies of goods intended for consumption in Switzerland and distributed via digital platforms.

The harmonisation of VAT rules between countries will ensure that VAT on international transactions is paid to the tax authorities of the country where the goods are consumed.

Overview of the new VAT measures for e-commerce

Under the current law, there are three possible scenarios for the allocation of services. The new VAT law introduces a new option, the fictional allocation of services (Art. 20a nLTVA).

Under the new provisions, which will come into force in 2025, platforms will be considered suppliers if they facilitate the supply of goods in Switzerland and will therefore be subject to Swiss VAT. They will have to declare and pay Swiss VAT on all supplies of goods to customers resident in Switzerland.

According to the draft amendment of the LTVArév practice, the term "facilitate" means that the platforms do not make the deliveries themselves and do not sell the goods in their own name. In other words, Art. 20a nLTVA will apply specifically to platforms that make deliveries for which they are not considered to be the supplier in the three scenarios set out in the current law.

It should be noted that only the sale of goods is affected by the application of Art. 20a, par. 1 of the new VAT law.

When will a platform be considered to facilitate the sale of goods?

From 2025, the new rules introduce a fiction whereby, under certain conditions, digital platforms are considered to be an integral part of the transaction chain that they facilitate. For VAT purposes, these platforms will be considered to have 'purchased' the goods from the seller and 'resold' them to the final consumer. According to the draft amendment to LTVArév practice, this VAT fiction will apply even if it is legally the supplier who sells to the consumer via the digital platform.

However, not all digital platforms will be affected by the regulation. This will depend on a number of conditions that will need to be assessed for each transaction.

In the case of sales of goods between a seller and a buyer concluded via a digital platform, it will be necessary to examine, according to the criteria of the authority, whether the digital platform is used to bring together a buyer and a seller for the purpose of concluding a contract of sale.

According to the draft amendment of the LTVArév practice, the administration lists a number of indicators that it considers to be criteria that prove that the platform facilitates the transaction, such as

- The platform owns the customer data;

- the platform is able to credit the sale without the prior consent of the seller if the goods have not been properly received; 

- the platform provides the technical solution for the order process, confirms the order and offers the possibility to complete the sale by payment without prior validation by the seller;

- the platform sends confirmation of the delivery of the goods or gives instructions to the Seller or to third parties for the delivery of the goods.

The contractual agreements between the platform and the seller will be used to determine who is considered the supplier, who is responsible for collecting the VAT and who must pay the collected VAT to the authorities in accordance with the new Swiss VAT rules. However, the actual implementation of the transactions between the platform, the seller and the end customer will also be decisive for the analysis of the conditions.

The analysis of all these elements will enable the transactions between the platform and the seller to be qualified for Swiss VAT purposes.

This applies to both Swiss and foreign platforms for the sale of goods. However, there is a difference in the conditions that must be met in order to be taxable in Switzerland. Foreign platforms must comply with the same conditions as foreign companies, with specific rules laid down for this purpose, in particular with regard to tax representation and guarantees that may be required by the authorities.

In principle, platforms that play only a very limited role in the process of ordering goods, or that do not generate any direct turnover from the transaction, or that only provide advertising services or space for the placement of advertisements, should not be subject to the provisions of Art. 20a of the new VAT law that will enter into force.

What about platforms that provide services?

It should be stressed that platforms that facilitate the provision of services (e.g. transport, accommodation, consultancy, advertising, accounting, analysis, catering, IT services, etc.) are not affected by this partial revision. In fact, these types of platforms offering digital content are already considered service providers under certain conditions and are not affected by this amendment.

Other provisions already allow the VAT rules in Switzerland to be determined, in particular the provisions applicable to telecommunications and information technology. For other services, such as accommodation or leisure activities, there are no plans to change the existing rules. The classification of services according to the current rules will, in principle, continue to apply under Article 20 of the VAT Act.

On the other hand, platforms facilitating the provision of services, which are not considered to be service providers for VAT purposes, will continue to be required to provide information to the authorities.

Who is responsible for what?

As the attribution of services only applies to VAT, the relationship created between the platform and the customer should not extend to civil law. Only if the conditions are met will the fiction of "successive fictitious sales" have an effect for Swiss VAT purposes. Through this fiction, the platform takes over the VAT obligations of the seller, in particular with regard to the payment of VAT on deliveries. As a result, the platform's liability is limited to VAT aspects.

However, the partial revision of VAT provides that a seller who makes deliveries via a digital platform may be subsidiarily liable for the payment of VAT on deliveries made in Switzerland. This subsidiary liability (rather than joint and several liability) is intended to ensure that the seller's tax obligations for the deliveries he makes are not completely waived and to further limit the opportunities for tax evasion in Switzerland.

In general, suppliers and platforms are already subject to certain obligations, in particular on Swiss territory. These include, for example, obligations relating to the sales and ordering process or the control of goods (arising from the Federal Act against Unfair Competition and the Ordinance on Price Indication) and data protection rules when collecting information on customers or sellers (arising from the Data Protection Act).

What are the consequences of non-compliance with the new obligations?

The FTA will be able to order administrative measures if platforms or mail order companies wrongly fail to apply for registration in the Swiss VAT register or fail to fulfil their obligations (preparation of VAT statements, payment of VAT, etc.). For example, the FTA will be able to order a ban on the import of their consignments or, as a last resort, the destruction of the consignments. In order to protect Swiss consumers, the FTA will also be able to publish the names of companies against which it has taken such measures.

Finally, an information obligation will be introduced for all digital platforms. On this basis, the FTA will be able to request all relevant information, in particular on the providers and the extent of their activities in Switzerland via the platform. Obtaining this information will enable the FTA to determine the Swiss VAT liability of foreign suppliers and to carry out certain controls. Platforms will have to provide the FTA with information on certain suppliers operating on their digital platform, some spontaneously and others on request. Finally, all electronic platforms, i.e. electronic interfaces that bring people together for the purpose of supplying goods or services, will now be obliged to provide information on buyers and sellers.

Conclusion

Experience has shown that the amendments to the VAT Act that came into force in 2019 were not sufficient to counter unfair competition from certain foreign suppliers. The influx of goods from abroad and the emergence of new distribution channels, such as digital platforms, are putting the guiding principles of VAT to the test. Largely inspired by the OECD's recommendations, Switzerland has adopted an approach similar to that currently practised in Europe.

The new rules, which are about to come into force, must now be taken into account in order to assess their potential impact and identify the measures that need to be taken. This reform should make it possible to reduce the loss of VAT revenue on international transactions. However, it also carries the risk of making VAT rules even more complex.