NO VAT ON COMPENSATION UNDER DEVELOPMENT AGREEMENTS

Under the Swedish Planning and Building Act (2010:900), a municipality may enter into a development agreement with a developer concerning the implementation of a detailed development plan. Such an agreement may oblige the developer to undertake or finance measures necessary for the plan's implementation, such as streets, public places and water and sewerage installations.

The municipality had agreed with a property company to carry out the design, procurement and relaying of public water and sewerage mains on land the company intended to develop for housing, with the company bearing the municipality’s actual costs through a development contribution. The municipality invoiced the contribution without VAT; the Swedish Tax Agency considered the arrangement a taxable supply of services.

HFD dismissed the Tax Agency’s appeal. For VAT to be payable, there must be a direct link between a service supplied and the consideration received, in the form of a legal relationship involving reciprocal performance. According to HFD, the legislative framework for development agreements is intended to limit what municipalities may demand of developers, not to regulate any counter-performance from the municipality, the developer’s benefit being the adoption of a plan enabling the development. On the facts, the new mains had not been requested by the company, the company acquired no rights in them, and they were needed for the municipality to meet the area’s water and sewerage needs. Nor could the adoption of the detailed development plan itself be regarded as a service, as it is a unilateral act of a public authority which, in line with the case law of the Court of Justice of the European Union, cannot create a legal relationship involving reciprocal performance.

Although decided under the old VAT Act (1994:200), materially corresponding provisions are found in the current VAT Act (2023:200).