Business incentives

DEFINITION

An incentive can have the form of an event with the aim to spur employees or business relations to achieve one or more goals as chosen by the company. For employees an incentive program can have the form of training or reflection sessions in a ski resort, combined with winter sport activities. The form of an incentive program for clients will depend on -apart from the goal that has been set- the line of business in which the company operates.

 

APPLICABLE LAW

Article 31 Par. 2 letter a Swiss VAT Act lays down the limitation of the entitlement to recovery of input VAT in connection with expenditures that have not been made for business purposes.
Article 153 Par. 1 Swiss VAT Regulation (‘MWSTV’) formulates that the VAT refund for foreign companies is subject to the scope and limitation of the right of deduction to input VAT as applicable for taxable persons that are registered for purposes of Swiss VAT. Article 153 Par. 2 Swiss VAT Regulation (‘MWSTV’) determines that travel agents and organisers of events with their place of business abroad are not entitled to refund of Swiss input VAT that has been invoiced to them for the purchase of domestic supplies of goods and supplies of services and that they recharge to customers.
In Swiss VAT Info No. 9 on Deduction and adjustment of input VAT, the Swiss tax authorities have laid down the administrative practice regarding the scope and limitation of recoverable input VAT.

 

USUAL ISSUES

  • ski event: generally, expenditures for holidays or leisure trips do not qualify as being made for purposes of business. Under such circumstances the Swiss VAT paid on those expenditures will not be refunded in the scope of the regulation for refund of Swiss VAT to foreign companies. However, in case these expenditures serve the achievement of the business purposes of the company, an entitlement to recovery of the paid input VAT exist -within the limits sets by the applicable regulations.  Expenditures in connection with events for team-building, the annual business trip with employees or events in connection with the company anniversary would entitle to VAT refund -providing all conditions have been fulfilled.
    Experience shows that the Swiss tax authorities are reluctant to refund foreign companies Swiss VAT they have been paid in connection with events that serve the achievement of the business purposes of their company.
  • business related hospitality: the world of business related hospitality is a reality that only to a (very) limited extent can inspire the imagination of the Swiss tax authorities.  Companies that make costs for client/business related hospitality do that for business reasons, namely in order to intensify or extend the relationship with the aim of generating new engagements. Nevertheless, experience shows that the Swiss tax authorities have a clear tendency to reject refund of Swiss VAT in connection with business related hospitality (e.g, tickets for football matches, ski/winter sports events).
  • recharging: even when expenditures for business related hospitality have clearly been made for business purposes, recharging these costs (fully/partly) to third parties will or may likely block the entitlement to refund. Namely, to the extent that the place of transactions for these costs is within the Swiss tax territory, a foreign company that claims refund inline with the regulation for refund of Swiss VAT to foreign companies will not fulfill the requirement of not having made domestic supplies during the period for which refund is claimed. Furthermore, depending the character of the recharged costs, the Swiss tax authorities may hold that the foreign company acts as or is comparable with a travel agent or event organiser, and for that reason is not entitled to Swiss VAT refund.