Supreme Administrative Court Judgment on Input Tax Deduction

Supreme Court’s judgments in case nos. 7071–24, 7072–24 and 7273–24

Case 7021-24

• Background of the Case: The Supreme Administrative Court addressed the right to deduct input VAT for a housing association (Härden 105) involved in both exempt residential leasing and taxable commercial leasing. The core issue was whether the association could allocate input VAT on common costs using the turnover-based method outlined in the EU VAT Directive.
• Legal Framework: Under EU VAT law, a taxable person can deduct input tax related to taxable transactions, while input tax related to exempt transactions is not deductible. Swedish legislation retains specific limitations on deductions, particularly concerning permanent residences, which may not align with EU law.
• Court Findings: The Supreme Administrative Court determined that the Swedish rule allowing deduction based on “reasonable grounds” does not comply with the clarity required by EU law. Consequently, the court ruled that the turnover-based calculation method specified in Article 174 of the VAT Directive must be applicable in Sweden.
• Implications for Mixed Activities: The court confirmed that Härden 105 could apply the turnover-based method for determining deductible input tax on common costs associated with its mixed activities, effectively allowing it to allocate VAT in accordance with EU regulations rather than restrictive Swedish provisions.
• Final Decision: The Supreme Administrative Court upheld the preliminary ruling from the Council for Tax Law, enabling the association to use the turnover method for input tax allocation, which reflects the direct applicability of the VAT Directive’s provisions in Swedish law.

Source domstol.se