Deduction of input VAT on transactional and advisory costs

by Maria Ström and Ebba Perman Borg


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A new ruling from the Swedish Supreme Administrative Court ("HFD") expands the scope of deductible input VAT referrable to purchase of a subsidiary to include situations when the parent company is not involved in the management of the subsidiary, but in the subsidiary of the purchased company.

A company's purchase and holding of shares in a subsidiary does not in itself constitute an economic business for the purpose of VAT and is therefore not included in the scope of VAT. However, if the parent company is actively involved in the management of its subsidiary, this is considered economic business activity within the scope of VAT. Transaction costs connected to the purchase of a subsidiary will in such case be deductible for VAT purposes.

In a recent ruling from HFD, a company Lamiflex Holding AB (the “Parent Company”), had purchased shares in Lamiflex Group AB (the “Subsidiary”). At the time of the purchase, the Subsidiary did not carry out any other business than owning shares in an active subsidiary, Lamiflex AB (the “Sub Subsidiary”). The Swedish Tax Agency refused the Parent Company deduction of input VAT relating to costs for the purchase, arguing that the Parent company had not been, and had no intention to be, actively involved in the management of the Subsidiary.

Initially, HFD held that the case law from the Court of Justice of the European Union only concerned scenarios where parent companies had the intention to supply taxable services to their subsidiaries. This, however, did not exclude that input VAT may be deductible in other scenarios as well. According to HFD, the decisive factor for deductibility was that the Parent Company's intention behind the purchase of the Subsidiary had been to provide taxable services to the Sub Subsidiary. Such business had also been carried out. Due to this, an objective connection between the purchase of the Subsidiary and the services that the Parent Company provided to the Sub Subsidiary was at hand.

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