Swedish Supreme Administrative Court clarifies partial exemption method

In a recent judgment the Supreme Administrative Court of Sweden has confirmed that the use of turnover to determine partial input VAT recovery was always permitted.

Volkswagen Finans Sverige AB, a Swedish company, carried out mixed activities i.e. the leasing of cars as well as insurance and financing services. Part of the company’s economic activity was therefore VAT exempt with no input VAT recovery right. The Swedish tax authorities demanded that the company sectorised (in other words, split) its two activities for the purpose of accounting for VAT, which resulted in a lower input VAT recovery balance than if the company had used a general apportionment method based on turnover. The Supreme Administrative Court held that, in the absence of clear and unambiguous guidance implemented into the Swedish VAT legislation, the taxpayer could rely on the general provisions of the EU VAT Directive, which, by default, provides for an apportionment method based on turnover.

Key takeaway

Input VAT recovery for a partially exempt business may be complex. On the other hand, a carefully thought input VAT recovery special method may prove beneficial for taxpayers. Turnover based recovery is often the safest method to use, but not necessarily the most advantageous. In the case of Sweden, it remains to be seen if guidance will be provided in response to the present case.