The reason for the proposed amendments is the ruling by the Court of Justice of the European Union (the “CJEU”), C‑787/18, Sögård Fastigheter AB, in which it was determined that the Swedish rules which require a buyer of real estate to assume the seller's right and obligation with regard to adjustment of input VAT, are non‑compliant with the VAT Directive.
When real estate and other investment assets are sold, it is either done within or outside of a business transfer. In its ruling, the CJEU invalidated the rules that prescribe that a buyer of real estate, when done outside of a business transfer, assumes the obligation to adjust deductions of input VAT made by a previous owner when the utilisation of the property changes after the purchase in a way that increases or decreases the right to deduct such input VAT. To make the Swedish rules compatible with the VAT Directive, various options for amendments have been considered in the proposal, with the most appropriate solution being one that means previously made deductions for input VAT should always be adjusted upon a sale, regardless of whether the buyer continues to use the property in a taxable activity or not. According to the proposal, therefore, in the case of a real estate sale, that does not constitute a business transfer, adjustment for deductions of input VAT should be made by the seller on a single occasion and cover the remainder of the adjustment period.
In the case of a sale as part of a business transfer, the buyer should continue to assume the seller's right and obligation to adjust previously made deductions of input VAT (provided that the buyer has such a right to deduct input VAT). Due to it not fitting into the system for business transfers, it is further proposed that i) the possibility to contractually agree that the seller should adjust input VAT and ii) the rule that the seller should adjust deductions of input VAT made due to changes that have occurred during the seller's ownership, should be removed.
In the proposal, it is noted that the changes may lead to unwanted lock‑in effects, since it will as a rule be less profitable to sell real estate during the adjustment period. Further, it will likely lead to higher prices. It is noted, however, that the situations in which a real estate property is sold, and the purchaser intends to continue with a taxable business in the property, will in most cases constitute a business transfer.
The amendments are proposed to enter into force on 1 January 2024. The changes shall not be applied on transfers or situations that take place or regard the time prior to the amendments entering into force.
Schjødt’s tax lawyers are following the continuous development closely.