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Guidance about deduction of input VAT

The main rule is that an acquisition or import should be attributed to an outgoing transaction that either does or does not entail the right to deduct input tax.

However, the same acquisition or import can be used so that only a part of the input tax can be deducted. This applies if the acquisition or import

  • concerns both transactions that entail and transactions that do not entail the right to deduct input tax, i.e. a mixed activity
  • to some extent is subject to a deduction restriction
  • to some extent will be used privately
  • to some extent will be used for a non-economic activity.

Mixed activity

The Supreme Administrative Court (HFD) has interpreted the provisions on the apportionment of input tax in a mixed activity in two cases (HFD 2014 ref. 18 I and HFD 2023 ref. 45). According to the Swedish Tax Agency’s interpretation, the assessment made by the HFD means the following for a taxable person who carries on a mixed activity where the input tax must be divided up:

  • The provisions in Chapter 13, Section 6 and Chapter 13, Section 29, first paragraph 2-3 and second paragraph of the Value Added Tax Act (2023:200), ML, shall be applied so that the apportionment on a reasonable basis as far as possible corresponds to the consumption of resources in the activity. This means, among other things, that if there is a method other than an apportionment based on annual turnover, which more accurately shows how the acquired goods and services are consumed in the activity, then this method should be used.

  • However, the provisions on annual turnover as a basis for apportionment in Articles 173.1 and 174 of Council Directive 2006/112/EC on a common system of value added tax, the VAT Directive, may be chosen by a taxable person instead of the provision in Chapter 13, Section 29, first paragraph 2-3 and second paragraph ML.

  • If a taxable person invokes the VAT Directive with direct effect, the input tax shall be divided up in the manner set out in the main rule in Articles 173.1 and 174 in accordance with the interpretation of these provisions by the Court of Justice of the European Union. According to the Swedish Tax Agency, this means that the entire annual turnover must be taken into account when calculating. The fact that the taxable person may have several branches of activity and the acquisition is not used for all of these branches of activity does not affect this calculation. However, if a taxable person has establishments in several countries, only the turnover that the acquisition relates to should be taken into account when calculating. This means that if an acquisition is only used by one establishment, it is only the annual turnover in that establishment that should be taken into account when calculating.

Deduction restrictions

According to the Swedish Tax Agency’s view, the VAT Directive cannot be applied with direct effect if the input tax partly concerns a deduction restriction. This also applies if the acquisition is partly subject to a deduction restriction and at the same time is partly attributable to transactions exempt from tax that do not entail the right to deduct input tax. This applies, for example, to purchases that are covered by the prohibition on deduction for permanent housing in Chapter 13, Section 26 ML and which are used for tax-free rental of housing. In these cases, an apportionment shall be made in accordance with the provision in Chapter 13, Section 29, first paragraph 1 and second paragraph ML, which means that the apportionment shall as far as possible correspond to the consumption of resources of the goods or services acquired.

Private and non-economic activity

The VAT Directive cannot be applied with direct effect either if the input tax relates to acquisitions that are partly to be used privately or for a non-economic activity.

This position replaces the positions “Deduction of VAT – apportionment on a reasonable basis”, dnr 131 446423-15/111 and “Refund of VAT to taxable persons established in Sweden who carry out transactions in other EU countries”, dnr 8-1398376.

This position entails a changed assessment regarding the apportionment of input tax in a mixed activity since the VAT Directive can be invoked with direct effect.

Source: www4.skatteverket.se

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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