The ruling of the Federal Administrative Court of 23 January 2019 (A-714/2018) was based on the following (abridged) facts (see also the corresponding article in the NZZ of 1 February 2019):
In August 2015, the Customs District Directorate issued a supplementary claim order in which it demanded from Mr Schwarzenbach ("S" or "complainant") the unlawfully uncollected value added tax plus default interest. Investigations had shown that in 86 cases works of art had been wrongly imported tax-free into Switzerland in the transfer procedure to a gallery. The importation of the works of art was based on a standardised commission transaction between the companies controlled by S and a gallery, which was not intended to be implemented. However, the gallery had at no time been able to economically dispose of the works of art, but S had determined in each case when and how the works of art were to be imported and whether they were to be moved to his private property or to another location. Furthermore, none of the works of art concerned had been sold in the period from 2008 to 2013.
An appeal against this supplementary claim was dismissed by the Directorate General of Customs ("OZD" or "lower instance").
The Federal Administrative Court considered the following in particular:
The Federal Administrative Court found that the Zollkreisdirektion had violated the right to be heard. This is because the complainant had only been given the opportunity to submit observations on six of 86 works of art before the order for supplementary claims was issued (E. 4.1.2). Despite the violation of the right to be heard, however, the lower court felt that it should refrain from rejecting the application, as this would have merely led to a formalistic idleness (E. 4.2 in fine).
Furthermore, the Federal Administrative Court found that the Federal Customs Administration ("FCA") was the competent authority based on administrative criminal law (VStR) (E. 11.1). The imports from 1 January 2010 to 11 March 2013 are not yet time-barred, as the limitation period is based on the new VAT Act and was interrupted by the subsequent purchase order of 19 August 2015 (E. 12.1.2). However, claims in so far as they related to imports from the period before 19 August 2008 were already time-barred (E. 12.1.1).
The Federal Administrative Court then examined in detail whether the commission agreements with the gallery for various works of art were simulated in order to pretend that the conditions for the relocation procedure were met. It affirms this, for example, because the foreign companies were controlled by S and the decision to transfer was largely due to S, and the prospect of not having to pay import duties obviously played a role (E 15.2). The companies had been used as mere vehicles, which is evident from a memorandum written by S's former legal representative (15.2.3). It was explained that it was S's intention to exhibit the imported works of art 'permanently' and that there was no mention of an intention to sell. In subsequent years, unless an enquiry is never made regarding sales efforts (E. 15.3). The Federal Administrative Court found the level of the net sales prices agreed with the gallery to be strange, as they were equal to or (even very much) lower than the purchase price (E. 17.3.2). It was also striking that the determination of the location was within the complainant's sole and direct sphere of influence (E. 17.4.1.1). Furthermore, the payment of the transport costs by the gallery, as agreed in the contract, had not been lived up to (17.4.3). The gallery thus had no economic power of disposal over the works of art examined in recital 17 at the time of the imports carried out under the deflection-of-trade procedure (E. 17.7).
Based on various indications, the simulation was also affirmed by a majority for the other works of art. For example, due to the fact that no sales efforts were on record (E. 20.2.2.2), that the works of art were stored for a longer period of time (E. 21.4), that the gallery did not co-determine the locations of the works of art (e.g. hotel or private dwelling) (E. 26.5), backdating of contracts (E. 31.1.1) or even the explicit rejection of a prospective buyer by the complainant with the indication that the work was not for sale (E. 33.4). In a few cases, the back tax claim was not protected and the complaint was upheld (e.g. E. 23.4).
It is true that the complaint was partially upheld in line with the considerations set out above and that the complainant's obligation to pay was reduced (E. 39). However, the remainder or 92% (see E. 40.1) of the appeal was dismissed.
