On 23 June 2020, the Swiss Federal Tax Administration (SFTA) published some material changes in their practical guidelines regarding the definition of electronically supplied services for VAT purposes in Switzerland.
With this long awaited change (a first draft was already published in April 2019), the Swiss approach is now (more) aligned to the EU VAT regulations. Under the new guidelines, a service qualifies as ESS if it meets the following conditions cumulatively:
- The service is delivered over the internet or any other electronic network;
- The service is provided in an automated manner involving minimal human intervention by the supplier; and
- It is impossible to ensure the provision of the service in the absence of information technology.
The new guidelines furthermore provide detailed explanations with respect to each of these three conditions as well as a list of examples of services who (do not) qualify as ESS.
We remind you that the provision of ESS to customers (business or non-business) not registered for VAT purposes but established/resident in Switzerland is likely to trigger a VAT registration obligation in Switzerland for the (foreign) service provider. Furthermore, once such VAT registration is in place, the attraction principle triggers the obligation for such foreign entity to charge and collect Swiss VAT on all its services to Swiss recipients (hence also VAT registered recipients).
As these are significant changes in the field of ESS, they should already be taken into account from the third quarter of 2020 (i.e. from 1 July 2020). In this respect, it is good to note that the Swiss VAT practice foresees retroactive VAT registrations as well as a voluntary disclosure procedure which could bring benefits to lower the historical VAT liability and risk (e.g. avoidance of penalties).
Considering that these new guidelines may trigger additional obligations in Switzerland for foreign suppliers, we recommend anyone rendering services which may qualify as ESS to analyze their Swiss VAT obligations based on the new provisions. Please do not hesitate to reach out to your KPMG contact to obtain further support in this respect.
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