Parent company denied VAT recovery on deal costs related to sale of subsidiary shares
In a recent case, a parent company in Sweden sought to recover input VAT on deal costs associated with the sale of shares of one of its subsidiaries. However, the Swedish tax authorities rejected the company’s claim, arguing that the costs were linked to an exempt activity. The Swedish Court of Appeal upheld the tax authorities’ decision, but the Swedish Administrative Supreme Court took a different stance.
The Supreme Court held that the sale of shares should be considered as part of the overall operations of the group and, therefore, should be treated as general expenses of the parent company. It stated that any limitation on VAT recovery should be assessed by the Court of Appeal. This ruling highlights the complexity surrounding the recovery of input VAT on deal costs, emphasizing the importance of seeking expert advice in such matters.
Value-added tax (VAT) is a consumption tax levied on goods and services in many countries around the world. It is intended to be borne by the final consumer and is collected at each stage of the supply chain. However, businesses are generally allowed to recover the VAT they have paid on their purchases, known as input VAT, by offsetting it against the VAT they have collected on their sales, known as output VAT.
In this case, the parent company argued that the deal costs incurred in relation to the sale of its subsidiary’s shares should be treated as input VAT, which it would then be entitled to recover. However, the tax authorities disagreed, contending that these costs were linked to an exempt activity, and therefore, the parent company had no right to recover the VAT.
The Swedish Court of Appeal agreed with the tax authorities, supporting their view that the costs were connected to an exempt activity. However, the Supreme Court took a different approach, considering the sale of shares as part of the parent company’s general expenses. It emphasized that any limitation on VAT recovery should be determined by the Court of Appeal.
The recovery of input VAT on deal costs is a complex area, with specific conditions that must be met for businesses to be entitled to deduct VAT. The case at hand highlights the importance of seeking professional advice to navigate the intricacies of VAT recovery and ensure compliance with the relevant regulations.
It is worth noting that VAT recovery rules can vary from one jurisdiction to another, and it is crucial to consider the specific regulations in each country. Seeking local expertise is essential to understand the applicable rules and maximize VAT recovery opportunities.
In conclusion, the recent Swedish Supreme Court ruling in favor of the parent company’s right to recover input VAT on deal costs related to the sale of subsidiary shares highlights the complexity of VAT recovery. Businesses must carefully assess the specific conditions and seek expert advice to ensure compliance and optimize VAT recovery.
