Sweden’s Supreme Administrative Court (HFD) issued a decision on 26 September 2023 in a case involving a holding company's right to deduct input VAT on costs related to the sale of shares. The ruling paves the way for holding companies engaged in economic activities to claim input VAT on the grounds that the costs associated with the sale of shares are linked to the company’s overall economic activity.
According to the decision, the holding company engaged in economic activities by providing compensated management services to its Swedish subsidiaries. The company underwent a reorganisation during which one of its subsidiaries was divested. The company sought to deduct input VAT for consultancy costs incurred in connection with the divestiture as a cost within the scope of the company's overall economic activity. The Swedish Tax Agency disallowed the deduction, stating that the costs were directly related to the sale of shares, which falls under the VAT exemption for such transactions. Consequently, there was no right to an input VAT deduction.
The HFD initially affirmed established precedent that there is no entitlement to an input VAT deduction if costs are deemed to be directly attributable to the sale of shares. Therefore, a prerequisite for deduction is that the costs can be considered directly related to the company’s overall economic activity. In making this determination, it must be ascertained whether the costs are included in the price of outgoing taxable transactions rather than in the price of the shares.
The HFD also noted that the absence of supporting jurisprudence of the Court of Justice of the European Union (CJEU) for distinguishing deduction rights based on the type of economic activity undertaken by a taxable person. The fact that the company's activities consist solely of providing taxable services to its subsidiaries does not preclude a deduction for consultancy costs, provided those costs constitute general overhead of the company.
The relevant costs could not be passed on to the buyers of the shares so it is presumed that the costs were included in the price of the services the company provided to its subsidiaries.
Linnéa Ekblad
Thony Hannell
BDO in Sweden
According to the decision, the holding company engaged in economic activities by providing compensated management services to its Swedish subsidiaries. The company underwent a reorganisation during which one of its subsidiaries was divested. The company sought to deduct input VAT for consultancy costs incurred in connection with the divestiture as a cost within the scope of the company's overall economic activity. The Swedish Tax Agency disallowed the deduction, stating that the costs were directly related to the sale of shares, which falls under the VAT exemption for such transactions. Consequently, there was no right to an input VAT deduction.
The HFD initially affirmed established precedent that there is no entitlement to an input VAT deduction if costs are deemed to be directly attributable to the sale of shares. Therefore, a prerequisite for deduction is that the costs can be considered directly related to the company’s overall economic activity. In making this determination, it must be ascertained whether the costs are included in the price of outgoing taxable transactions rather than in the price of the shares.
The HFD also noted that the absence of supporting jurisprudence of the Court of Justice of the European Union (CJEU) for distinguishing deduction rights based on the type of economic activity undertaken by a taxable person. The fact that the company's activities consist solely of providing taxable services to its subsidiaries does not preclude a deduction for consultancy costs, provided those costs constitute general overhead of the company.
The relevant costs could not be passed on to the buyers of the shares so it is presumed that the costs were included in the price of the services the company provided to its subsidiaries.
Comments
Historically, the Swedish Tax Agency has been exceptionally restrictive in its interpretation of input VAT deduction rights of active holding companies, which are linked to costs incurred on the sale of shares. Against this background, the administrative court’s decision is welcome, aligning more closely with general CJEU jurisprudence in this area. The ruling also opens up possibilities for active holding companies that were previously denied deduction rights to request a review of the decisions, with the option to retroactively go back six years. Alternatively, companies that have not claimed deductions for such expenses may now consider the opportunity to seek deductions related to such costs.Linnéa Ekblad
Thony Hannell
BDO in Sweden