Deduction when selling shares in a subsidiary - out of scope, exempt or VAT?

Abstract: The right to deduct input value added tax (“VAT”) depends on a direct and immediate link to a taxable persons taxable activities. The disposal of shares is either out of scope of VAT, since it is not considered an economic activity, or exempt from VAT. Consequently there is, in general, no right to deduct input VAT for costs relating to such a disposal. However, the Court of Justice of the European Union (“CJEU”) has stated that when there is a direct and immediate link to a taxable persons overall economic activity there can be a right to deduct the input VAT on such related acquisitions. How this direct an immediate link is to be decided has however been the question for many cases in front of the CJEU. During 2017 the Swedish Supreme Administrative Court (“HFD”) held its judgment in the Sveaskog’s case. The court concluded that Sveaskog should have a right to deduct input VAT for costs acquired in connection to the exempt disposal of shares. Since the purpose of the disposal was to liberate capital to Sveaskog’s remaining taxable activities, HFD considered that there was a direct and immediate link to Sveaskog’s overall economic activities. As a consequence of the judgment, the Swedish Tax Agency (“SKV”) published an opinion (ställningstagande) in which it states that only in case the purpose of the disposal is to liberate capital to the remaining economic activity in the company, there can be a right to deduct. Providing management services should be excluded from such remaining economic activity. SKV hence excludes the possibility to deduct when the disposal is for the benefit of the subsidiaries of the selling company. Since VAT is harmonized within the EU, the national courts and authorities have to interpret the Swedish VAT Act (Mervärdesskattelagen) in conformity with the case law from the CJEU. The question subsequently arising is, if the Swedish legal position is in line with EU-law and the CJEU’s case law. The authors conclusion is that the case law from the Swedish court post Sveaskog is in line with the case law from CJEU, but that SKV’s opinion (ställningstagande) of the right to deduct is infringing the principle of neutrality.