Takeover of the obligation to adjust deductions for input VAT

Judgment of the Supreme Administrative Court 2021-06-24, case no. 4302-17.

Summary

On 24 June 2021, the Supreme Administrative Court (HFD) announced judgments in cases concerning the taking over of the adjustment obligation, case no. 4302-17 and case no. 445-448-18. The outcome was the same in both cases. In one of the cases, the HFD had obtained a preliminary ruling from the European Court of Justice. The comment refers to this case (4302-17).

HFD first states that it has been clarified by the European Court of Justice’s preliminary ruling that the VAT Directive does not provide support for imposing an obligation to adjust a deduction for input tax made by a person who has acquired a property in accordance with the Swedish regulation in the VAT Act (ML). previous owner of the property.

HFD then states that the European Court of Justice has not answered the question of whether it is compatible with the VAT Directive that the adjustment obligation is transferred to the buyer in cases where the property is transferred by such transfer of assets referred to in Article 19 of the VAT Directive (so-called business transfer). According to HFD, it is thus still not clear whether the Swedish regulation on taking over the adjustment obligation for deductions in connection with the transfer of business is compatible with the directive. However, HFD did not take a position on whether the adjustment obligation can be transferred in the event of a business transfer because the Swedish Tax Agency has not shown that the transfer had taken place through a business transfer.

The HFD judgment means that the Swedish provisions on taking over the adjustment obligation in the event of a pure property transfer shall no longer be applied.

Since HFD has not taken a position on whether the Swedish provisions on taking over the adjustment obligation can be applied in the event of a transfer of operations, the Tax Agency maintains its previous view regarding such cases. The Swedish Tax Agency will therefore continue to apply the Swedish provisions on taking over the adjustment obligation when it comes to business transfer.

In assessing whether it is a business transfer, it is not sufficient to consider it as a business transfer only on the grounds that the voluntary tax liability passes to the buyer in connection with the acquisition according to ch. § 5 ML .. An overall assessment must be made of all the circumstances in the individual case. The Swedish Tax Agency intends to make a clarification in legal guidance.

Minutes

The issue in the case concerns a company that in 2012 acquired a property that was then subject to voluntary tax liability. Upon acquisition, the company continued the lease with voluntary tax liability. In connection with the acquisition, the company took over the previous owner’s rights and obligations to adjust deductions for input tax that related to the redevelopment of the property.

In 2013, the company transferred the property to two private individuals. The voluntary tax liability ceased upon transfer. The obligation to adjust the previous owner’s deduction for input tax thus arose in accordance with the provisions of ML. The Swedish Tax Agency therefore decided that the company is liable for adjustment for the previous owner’s deduction for input tax.

The company opposed the Swedish Tax Agency’s decision and stated that it is only the person who has made the deductions attributable to an investment product that can be imposed an obligation to adjust the deductions.

The Administrative Court rejected the company’s appeal. The Court of Appeal upheld the appeal.

The Swedish Tax Agency appealed the Court of Appeal’s ruling to HFD. The HFD then requested a preliminary ruling from the European Court of Justice. HFD asked two questions which were answered as follows.

The European Court of Justice’s assessment of the first issue is that the VAT Directive constitutes an obstacle to national legislation which stipulates that the seller of a property is not obliged to adjust a deduction for input VAT if the buyer is to use the property exclusively for transactions that entail a right to deduct, while also imposing the buyer to adjust the deduction for the remainder of the correction period at the time when the buyer in turn transfers the property to someone who is not to use the property for such transactions.

The second question to which the HFD requested an answer was whether the European Court of Justice’s assessment of the first question also applies when a property is transferred through such a transfer of assets as referred to in Article 19 of the VAT Directive. In this part, the European Court of Justice did not provide an answer, as the European Court of Justice considered that it was only a hypothetical question at this stage of the HFD’s review of the case.

HFD stated that the ruling of the European Court of Justice clarifies that Article 188 of the VAT Directive does not provide support for imposing an obligation on the person who has acquired a property in accordance with Swedish regulations to adjust a deduction for input tax made by a previous owner of the property. Thus, in situations of the kind referred to in Article 188, the VAT Act is not compatible with the Directive. This means that the company cannot be required to adjust the previous owner’s deduction with reference to the property being subject to voluntary tax liability and that the adjustment obligation on that basis was taken over by the company when the property was acquired.

Furthermore, the HFD stated that the European Court of Justice did not answer the question whether Article 19 of the Directive provides support for the obligation to adjust to be transferred to the acquirer in the event of such a transfer. It is thus still not clear whether the Swedish regulation in this respect is compatible with the directive. In the case, however, it becomes relevant to take a position on that question first if it can be established that the acquisition in the company’s case has taken place through a business transfer. Since it is the Swedish Tax Agency that claims that it is a question of a business transfer, it is the authority that has the burden of proof that this is the case.

HFD further stated that it is not sufficient that the voluntary tax liability according to ch. § 5 ML passes to the buyer for it to be considered a business transfer according to ch. 1 b § ML. An overall assessment of all circumstances must be made. HFD considered that the Tax Agency in the present case had not shown that the buyer had acquired the property through a business transfer. HFD therefore did not take a position on whether the adjustment obligation can be transferred in the event of a business transfer.

The Swedish Tax Agency’s comment

The question in the case was whether in the case of a property transfer it is compatible with the VAT Directive to transfer the adjustment obligation to a new owner of the property regarding deductions for input tax that the previous owner has made.

The Supreme Administrative Court found that it has been clarified by the judgment of the European Court of Justice that it is not compatible with the VAT Directive to transfer the adjustment obligation to a new owner in a pure property transfer, ie. when the transfer does not take place through a business transfer. The Swedish regulations in that respect will thus no longer be applied.

The European Court of Justice did not rule on what applies if the property is transferred in connection with a transfer of business in accordance with Article 19 of the VAT Directive. It is therefore still unclear whether the directive allows the adjustment obligation to be transferred in the event of such a transfer. HFD also did not take a position on whether the adjustment obligation can be transferred in the event of a business transfer because the Swedish Tax Agency has not shown that the transfer had taken place through a business transfer.

As HFD has not taken a position on whether the Swedish provisions on taking over the adjustment obligation can be applied in the event of a transfer of operations, the Tax Agency maintains its previous view. The Swedish Tax Agency will therefore continue to apply the Swedish provisions on taking over the adjustment obligation when it comes to business transfer.

In assessing whether it is a business transfer, it is not sufficient to consider it as a business transfer only on the grounds that the voluntary tax liability passes to the buyer in connection with the acquisition according to ch. 5 § ML. An overall assessment must be made of all the circumstances in the individual case. The Swedish Tax Agency intends to make a clarification in legal guidance.

References

Chapter 2 1 b § ML

8 a kap. and Chapter 9 9-13 §§ ML

Article 19 of the VAT Directive