Clarification of the case law on the VAT treatment of intermediary services for capital contributions

Facts of the case

X-AG provided brokerage services in connection with the subscription of company shares issued during capital increases. In particular, the company assisted various companies in finding (new) investors for their newly issued shares. X-AG declared these brokerage services as tax-exempt revenue. Subsequently, the Swiss Federal Tax Administration (SFTA) inquired about the taxpayer's exact activities and requested relevant contracts and invoices. In a supplementary assessment dated 18 July 2019, the SFTA concluded that the taxpayer provided taxable services, requalified the revenues declared as exempt during the relevant quarter as taxable, and required the payment of the due VAT. The SFTA justified this by stating that X-AG's counterparties issued new shares as part of capital increases. Since capital injections do not constitute taxable supplies under Swiss VAT law but are considered to be out of the VAT scope, X-AG's brokerage services could not be considered tax-exempt under Art. 21 para. 2 no. 19 let. e VAT Act. The Swiss Federal Administrative Court, in its interpretation of Art. 21 para. 2 no. 19 let. e VAT Act, concluded that brokerage services are only exempt from VAT if the underlying transaction itself is VAT exempt under this provision (BVGE A-2585/2022 of 29 June 2023), thus confirming the practice of the SFTA.

Recent decision of the Swiss Federal Supreme Court 9C_459/2023 from 31 July 2024

The Swiss Federal Supreme Court specifically addressed the following two points in its judgment:

• Wording of Art. 21 para. 2 no. 19 let. e VAT Act: The Swiss Federal Supreme Court emphasized that the use of the preposition "including" implies that the term "brokerage" necessarily refers to "supplies". However, as the term "supplies" is further specified and limited by the phrase "of securities, book-entry securities and derivatives, as well as shares in companies and other associations", the term "brokerage" also applies to this limitation. Although it is grammatically correct that the brokerage of securities transactions is exempt, this does not mean that the brokerage is only exempt if the brokered transactions are also covered by Art. 21 para. 2 no. 19 let. e VAT Act.
• Brokerage of securities transactions exempt from tax: The Swiss Federal Supreme Court also held that, for the purposes of interpreting Art. 21 para. 2 no. 19 let. e VAT Act, it is irrelevant that the exemptions under Art. 21 para. 2 VAT Act require a taxable supply pursuant to Art. 18 VAT Act. Logically, revenues out of the VAT scope cannot be exempt from VAT. In this case, however, only the brokered securities transactions are outside the VAT scope, while the brokerage service itself constitutes a supply pursuant to Art. 18 para. 1 VAT Act.

To sum up, the Swiss Federal Supreme Court clarified that brokerage services related to the issuance of company shares (capital increases) may fall under the exemption of Art. 21 para. 2 no. 19 let. e VAT Act, even though the underlying transaction is considered to be outside the VAT scope.

Conclusion

The Swiss Federal Supreme Court's decision provides clarity on the VAT treatment of brokerage services relating to the issue of company shares. Indeed, the brokerage of newly issued company shares should not be treated differently from the brokerage of existing shares simply because the underlying transaction does not fall within the scope of VAT. However, practical issues remain when distinguishing between the exempt brokerage of a sale transaction and the taxable brokerage of a client relationship or taxable advisory service. It is therefore advisable to carefully consider the VAT treatment of brokerage services. This also applies if a Swiss company receives such brokerage services from a service provider located outside of Switzerland.

Article written by André Kuhn, Caryl Neuenschwander, Yann Waeber and Dominique Roggo