The Swedish Tax Agency presented on 28 December 2010 a legal position paper (131 623316-08/111) regarding the application of the Swedish transfer of a going concern (TOGC) VAT exemption. The Swedish TOGC provision is based on Article 19 of the Directive (2006/112/EC). According to the TOGC provision in the Directive, Member States may consider that no supply of goods has taken place in case of a transfer of a totality of assets or part thereof. In Sweden, however, the TOGC provision has instead been implemented as a VAT exemption.
Previously, the Tax Agency has been of the opinion that only in case of a fully taxable business being transferred could the TOGC VAT exemption be applied. This position was mainly based on a strict interpretation of the wording of the Swedish TOGC provision.
In the legal brief, the Tax Agency changes its previous strict position regarding the applicability of the TOGC VAT exemption. The Swedish TOGC provision should, in accordance with the ECJ rulings in C-14/83 von Colson, C-106/89 Marleasing and C-397/01 Pfeiffer, be interpreted so far as possible, in the light of the wording and purpose of the Directive in order to achieve an outcome consistent with the objective pursued by the Directive. Further, from the ECJ ruling C-497/01, Zita Modes, it follows that a Member State which makes use of Article 19 must apply the no-supply rule to any transfer of a totality of assets or part thereof and may not therefore restrict the application of the rule to certain transfers only.
The Tax Agency is therefore now of the opinion that the TOGC VAT exemption can also be applied in cases where a mixed business is being transferred unless both conditions below are met.
- The acquirer would not be entitled to VAT deductions otherwise charged due to an only partially VAT liable/non VAT liable business, and
- The application of the TOGC VAT exemption would result in a distortion of competition.
In practice, the TOGC VAT exemption can thus now be applied in most cases. The TOGC VAT exemption would however not be applicable in cases where the acquirer will be using the acquired assets in a way where the deductible portion of the input VAT is smaller than the deductible portion of the input VAT was for the seller, when the assets were used by the seller. This would typically be the case when the business is transferred to or merged with an already ongoing business conducted by the acquirer where the taxable portion of the business is smaller for the acquirer than for the seller. Any change in the taxable portion of the business of the acquirer after the transfer has taken place is however of no importance when applying the provision.