In 1993, the Swiss People, in a referendum, voted to accept the principle of a value added tax (VAT). To implement this decision, the Federal Council (Government) prepared a VAT Ordinance which introduced VAT with effect from January 1 1995. It should be noted that the ordinary legislative power of the Federal Parliament was not used to draft and pass a law concerning VAT, as such a procedure would have taken a long time.

The VAT Ordinance has been severely criticised by some observers especially with respect to the following matters: the limitation of the input tax deduction to 50% for business travel, accommodation and subsistence, full taxation for supplies to tourists, the taxation of directors' fees, the definition of export services and so on.

In the light of this criticism, the Federal finance department has reconsidered some of its views and has decided to amend the VAT Ordinance. The changes will come into force on January 1 1996. The main projected amendments concern the full input deduction for business travel and accommodation (but not for meals and beverages for which the 50% rule remains), a reduction in the standard rate of VAT for certain international organisations and their senior employees.

At the same time, the Federal Parliament has decided to accelerate parliamentary procedures for the approval of a Federal VAT law which will replace the VAT Ordinance. The draft law will be discussed in Parliament in spring 1996. Some of the expected amendments to the current VAT system include the option for a taxpayer to charge VAT on services which are exempted from VAT (such as activities in finance, banking, insurance and health care) and a revised definition, based on the rules applicable within the European Union, of the location (or place of performance) of supplies of services.

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