VAT recovery on costs related to the sale of shares

In this case, a parent company (of the Volvo group) providing management services to its subsidiaries, sought to recover input VAT on deal costs relating to the sale of shares of one of those subsidiaries.

The Swedish tax authorities denied the holding company this right on the basis that the costs were directly linked to an exempt activity (the sale of shares). That decision was appealed, and the Swedish Court of Appeal eventually confirmed the position of the tax authorities.

On 26 September, the Swedish Administrative Supreme Court held that, in circumstances such as those in instance, it should be considered that the sale of shares was linked with the group overall’s operations and, as such, were constitutive of general expenses of the parent company within the framework of its activity that is the management of its subsidiaries. Input VAT recovery should therefore be allowed.

The Supreme Court also held that any limitation in the recovery of VAT, whether because the input VAT is partially linked to an activity that is exempt or out of scope, had to be assessed by the Court of Appeal, to which the case is now referred back.

Key takeaway

The recovery of input VAT on dela costs is always a complex area of VAT and, even if in principle, VAT incurred in relation to the sale of shares is irrecoverable, the right to deduct may arise under specific conditions. Advice is always crucial.