Federal Supreme Court, 11.10.2025, 9C_556/2024
Facts
A VAT-registered group (the taxpayer), whose primary business is organizing language stays and exchange programs abroad, offers its clients optional travel insurance coverage in addition to its training programs. To do this, the taxpayer entered into a group insurance contract with a Swedish insurance company. It then invoices this insurance service to the participants who choose it, in its own name and as a separate item, even though it is presented as part of a "package."
Following an audit covering the 2014 to 2018 tax periods, the Federal Tax Administration (FTA) determined that the training services, although exempt, entitled the taxpayer to input tax deduction because they are provided abroad and an option to tax is available. Conversely, it classified the insurance service as an independent principal supply, exempt from VAT with no option to tax, which excludes the right to input tax deduction. The FTA consequently made an input tax adjustment for mixed use, resulting in a tax claim of CHF 264,047. The Federal Administrative Court upheld this analysis. The taxpayer has appealed to the Federal Supreme Court.
Legal Analysis
The dispute concerns the classification of the insurance service: is it an ancillary supply to the training service (the principal supply) or an independent principal supply?
Under Art. 19 para. 1 of the Swiss VAT Act (LTVA), each supply must in principle be treated independently for VAT purposes. Art. 19 para. 4 LTVA provides an exception for ancillary supplies, which share the tax treatment of the principal supply. A supply is considered ancillary if it meets the following cumulative conditions: it is secondary to the principal supply, it is closely linked to it, it complements, improves, or perfects it economically, and it is usually provided with it. This assessment is based on an economic approach from the perspective of the average consumer.
Training services (Art. 21 para. 2 item 11 LTVA) are exempt but subject to an option to tax (Art. 22 para. 2 let. a LTVA), which allows for input tax deduction for services provided abroad (Art. 29 para. 1bis LTVA). Insurance services (Art. 21 para. 2 item 18 let. a LTVA) are exempt without the possibility of an option to tax, thereby excluding input tax deduction (Art. 29 para. 1 LTVA).
Application to the Case
The Federal Supreme Court examined whether the insurance service could be classified as an ancillary supply to the language training. It noted that the two services pursue distinct objectives: one is aimed at training, while the other covers risks (illness, accident, etc.).
The Federal Supreme Court held that a training service does not necessarily have to be accompanied by travel insurance. It noted that it is common for participants to already have insurance coverage or to purchase it independently of the language stay. Consequently, the condition that an ancillary supply must "usually" accompany the principal supply is not met. The insurance service does not simply serve as a means to benefit from the principal supply under optimal conditions, but rather pursues a purpose of its own for the client.
The Federal Supreme Court therefore concluded that the insurance service is an independent principal supply and not an ancillary supply. The FTA was therefore correct to make an input tax adjustment for mixed use. The calculation method used by the FTA (the "three-pot" method with an allocation key based on turnover) was also deemed appropriate and not arbitrary.
Outcome
The Federal Supreme Court partially allowed the appeal. It found that the tax claim for the 2014 period is time-barred (Art. 42 para. 6 LTVA). For the remainder (2015 to 2018 periods), it dismissed the appeal and upheld the decision of the Federal Administrative Court. The judgment of the lower court is therefore set aside regarding the 2014 tax period and confirmed for the rest.
Silex Tax Newsletter published in collaboration with Anna Vladau, Attorney at Law
