For purposes of Swiss VAT, with services in the field of research are meant research activities of all sorts, ranging from fundamental research, to applied fundamental research or applied research, regardless whether or not performed by public or private institutions/persons.
Fundamental research means research for purposes of acquiring general knowledge that is not focused on a specific application. Fundamental research serves to extend scientific knowledge, and is the basis for applied research and development.
Applied fundamental research pursues fundamental research, functioning as intersection between fundamental research and applied research, and is aimed at a specific, but still to be developed use of scientific, technical, medical, social or cultural nature.
Applied research is focused on a specific application or use of scientific, technical, medical, social or cultural nature.
Regularly, foreign taxable persons engage institutions or persons in Switzerland to provide -against consideration- services in the field of research.
Article 3 letter c Swiss VAT Act determines that ‘supply’ means the admission of a usable economic asset to a third party in expectation of a consideration, even if it is required by law or based on an administrative order.
Article 8 Swiss VAT Act lays down the regulation for determination of the place of supply of services.
In Swiss VAT Business Info No. 25 on Research and development, the Swiss tax authorities have published their administrative practice for the VAT treatment of the supply of services in connection with research.
- research as supply of services: research services performed against consideration by Swiss based institutions are basically subject to Swiss VAT when the party that pays the research has an exploitation right regarding the results, or when research is performed on behalf of and customized to the needs of the paying party. Irrelevant is whether the research results can be used by the paying party. The research results can have the form of reports, protocols, blue prints or prototypes.
Whether research services will be indeed subject to Swiss VAT will depend also on the applicable rules regarding the place of supply. Research services with the character of consultancy will be out of scope of Swiss VAT when the recipient is a foreign company with its place of business or branch outside Switzerland. Namely, in that case the place of supply is outside Switzerland. Research services not with the character of consultancy (i.e. genuine scientific research) are assumed to be supplied where these research activities take place. The latter implies that such research services performed by Swiss based institutions will be subject to Swiss VAT.
- contract research: research ordered by and for the needs of the principal/customer are characteristically for contract research. These characteristics emphazise in that case the consultancy nature of the research. Namely, the research supports the decision process of the principal for solving issues of a scientific, technical, medical, social, legal or cultural nature. Contract research supplied to a foreign company, i.e. with its place of business or branch outside Switzerland, is not subject to Swiss VAT.
- exclusive rights: payments for research for which in exchange the payer has the exclusive right to exploitation of the research results are generally subject to Swiss VAT. However, these research services will not be subject to Swiss VAT when the payer of the research is a foreign company – i.e. with its place of business or branch outside Switzerland.
- analysis: with analysis is meant the systematically investigation of a tangible property or situation with respect to all or individual components or factors. An analysis does not yield new insights in terms of intellectual creation. The analysis consists of the classification, evaluation and assessment of a tangible property or situation, with the purpose of recording the corresponding results in a report. Analysis services supplied to a foreign company, i.e. with its place of business or branch outside Switzerland, are not subject to Swiss VAT.
- development: the Swiss VAT treatment of development services is similar to the VAT treatment of research services (see above).
Technology development concerns the acquisition and enhancement of knowledge and skills, aiming to solve practical problems with the help of technology. Predevelopment concerns the preparation of serial standard and market-based product development. The goal of predevelopment is to anticipate on the technical risks that are embedded in serial standard and market-based product development. The final stage concerns product and process development, i.e. all created potentials (knowledge, skills, processes, product prototypes) are turned into definite saleable products or processes. The goal of the final stage is the launch of new or changed products or processes.
- research contribution: payments for research performed on behalf of the principal, but not for his needs, are considered to be a contribution for supporting research and development. Such payments, when made to universities and similar research institutions, are not treated as consideration for purposes of Swiss VAT.