Case law on subsidies in the VAT Act

The following blog post provides information on the Federal Supreme Court ruling of July 28, 2014 (2C_1143/2013 and 2C_1144/2013). The Federal Supreme Court classifies the reimbursement of transport costs for pupils attending a special school as subsidies within the meaning of Art. 18 para. 2 lit. a MWSTG. The service is therefore not subject to value added tax.

Facts

The association A. runs special schools for children and young people with mental or physical disabilities. A. has concluded a framework agreement with the taxi company B. to ensure the transport of the pupils. The taxi company charges the standard rate of 8% for its services. The association A. can in turn pass on the transport costs to the canton of St. Gallen. During an audit, the Federal Tax Administration (FTA) concluded that these passed-on transport services were also taxable, as they constituted a transport service provided for consideration to persons subject to compulsory schooling. The Federal Administrative Court upheld the additional charges in its decision of October 30, 2013. The association A. subsequently lodged an appeal against the FTA in public law matters with the Federal Supreme Court and was upheld.

Considerations of the court

Citizens are entitled to free primary education at the place where they usually reside. A discrepancy between the place of residence and the place of schooling must not lead to a restriction of free school education.Services provided in Switzerland for consideration are subject to value added tax (Art. 18 para. 1 MWSTG). The transport services provided by the taxi company are clearly taxable. It was disputed to whom the taxi company provided the service. The beneficiaries of the transport contract are directly the school-age children and indirectly their legal guardians. However, since there are no individual contracts between the taxi companies and the schoolchildren, but only the framework agreement between A. and the taxi company, the Federal Supreme Court assumes that the association A. is the recipient of the service.

Transport services that must be provided due to an unreasonable school route are covered by the right to free school education. The association's services are provided free of charge to school-age children. This means that the payments made by the canton of St. Gallen to association A. constitute subsidies (Art. 18 para. 2 lit. a MWSTG) and not taxable remuneration for services. This avoids the mere passing on of a service that has already been subject to VAT.