Case C-29/08 Skatteverket v. AB SKF - What did the court mean?

1. Independent tax advice Case C-29/08 Skatteverket v. AB SKF - What did the court mean? Mattias Fri Disclaimer The document is not comprehensive and should not be used for purposes other than as a basis for discussion. The purpose of this document is to provide a summary and provide a basis for further discussion. Further investigation into the tax, accounting and civil aspects of the content of this hand is necessary before any implementation

2. Purpose of presentation • Analyse the ECJ decision • Present and analyse the aftercoming decision by the referring national Court, the Swedish Supreme Administrative Court • Is input VAT related to share of shares deductable in European VAT today? Discussion based on the questionnaire. DISKUSSIONSUNDERLAG

3. Background • When is there a right to deduct input VAT on costs related to a parent company’s disposal of shares in a wholly-owned company? • Case C-29/08 Skatteverket v. AB SKF • RÅ 2010 ref 56 (decision by the referring Swedish Supreme Administrative Court)

4. Questions referred to the ECJ 1. Does a disposalofshares in a wholly-ownedcompany fall inside the scopeof VAT? 2. If yes, is the disposalofshares in a wholly-ownedcompanyexempt from VAT accordingtoArticle 135(1)(f) of the VAT Directive (2006/112/EC) (transactions in shares)? 3. Regardlessof the answertoquestions 1 and 2: is there a right todeductionof input VAT on the input services dueto the factthat the costsare part of the overhead costs for the managingof the parentcompany’s business? 4. Does it matterif the disposal is madethroughsuccessivetransactions?

5. Case C-29/08 Skatteverket v. AB SKF 1.A disposalofshares falls within the scopeof VAT as an economicactivityif it is a direct, permanent and necessary extension of the taxableactivityof the taxable person and to the extentsuch a disposal is not regarded as an equivalentto a transfer of a going concern. 2. A disposalofshares is exempt from VAT. 3. There is a right todeductionof input VAT ifthere is a direct and immediatelinkbetween the thecostsassociatedwith the input services and the overall economicactivitiesof the taxable person. National courtsthushavetodeterminewhether the costsincurredare: • likelyto be incorporated in the priceof the sharessold (linkwith the disposal, thus no right todeduction), or • areonlyamong the costcomponentsoftransactionswithin the scopeof the taxableperson’seconomicactivities (linkwith the overall economicactivities, thus a right todeduction). 4. The conclusionsaboveare not affected by the factthat the disposalofshares is carriedout by wayofseveralsuccessivetransactions.

6. RÅ 2010 ref 56 – the decision after the referral to ECJ • Not a unanimous Swedish Supreme Administrative Court (3-2). • Introductory question: is there a direct and immediate link between the costs associated with the input services and the actual disposal of shares? • If yes; no right to deduction of input VAT. • If no; how to determine the extension of the right to deduction? • Should the taxpayer not be entitled to a deduction if it has not been shown that the input VAT on input services relates to the actual disposal of shares? • According to the Swedish Supreme Administrative Court there is no right to deduction of input VAT regarding: • Assistance in negotiating with the purchasers of the shares • Lawyer services related to the signing of contracts • According to the Swedish Supreme Administrative Court the right to deduction of input VAT could in this case not be determined regarding: • Assessments, financial Due Diligence, consideration to actors on the market who had assisted in trying to find potential purchasers • What does it mean that the Swedish Supreme Administrative Court has ruled that specific acquisitions can result in the right to deduction of input VAT?

7. Disposal of shares – still a right to deduct input VAT? • Whetherthere is a right todeduct input VAT on input services relatedto a disposalofsharesdepends on the following: • What is the aquisition a costcomponentof? • Only a right todeductionif the aquisition is a costcomponentoftaxableeconomicactivities. • and • Is there a direct and immediatelinkbetween the input services and the taxableeconomicactivitiesof the taxable person? Does the limitation in the right todeduct input VAT end wherethe exemptionaccordingtoArticle 135(1)(f) of the VAT Directive (2006/112/EC) starts? • The Swedish Tax Agency: In general of the opinion thatthere is no right todeduct input VAT on transactionrelated services in caseofdisposalofshares. • Disposalofshares is an economicactivityto the extentthat it is not regarded as an equivalentto a transfer of a going concernwhich is not an economicactivityaccordingtoArticle 19 in the VAT Directive. • The Swedish Tax Agency: a parentcompany’sdisposalofshares in a wholly-ownedcompanytowhich the parentcompnaysupplies services aimed for the entirecompanygroupcannot be regarded as a transfer of a going concern.

8. Pro rata • Can the disposal of shares have any impact on a company’s pro rata regarding the right to deduction, thus input VAT be general overhead costs for managing the business? • The Swedish Tax Agency: Disposal of shares can have an impact on a company’s pro rata. • Swedish case law: Unclear!

9. Independent tax advice Thank You. Stockholm Smålandsgatan 16 Tel +46-8 528 01 250 stockholm@svalner.se Malmö Stadt Hamburgsgatan 1 Tel +46-40 660 99 80 malmo@svalner.se Disclaimer The document is not comprehensive and should not be used for purposes other than as a basis for discussion. The purpose of this document is to provide a summary and provide a basis for further discussion. Further investigation into the tax, accounting and civil aspects of the content of this hand is necessary before any implementation