Post by David Stevenson on Feb 26, 2009 2:46:31 GMT 4
AB SKF judgement will have important implications for companies in the EU
Advocate general (AG) Mengozzi has issued his opinion in Skatteverket v AB SKF stating that AB SKF is unable to recover its input VAT from the transfer of shares as the transaction was VAT exempt under article 135. 1.f of the VAT directive.
The AG said the transaction to dispose of a subsidiary constitutes economic activity and falls within the scope of VAT. However, in what some commentators see as a strange move, the AG decided that the services AB SKF acquired, including advisory and legal services, were directly linked to the VAT-exempt share transfer and any VAT on those costs are not recoverable.
AB SKF, the parent company of a Swedish industrial group, argued that the costs for disposing of shares in a subsidiary should not be linked to the share transfer but to the general business of AB SKF and since it carries out fully taxable business, it should be entitled to recover VAT.
"Apart from the AG's view, several arguments have been put forward to show that AB SKF is entitled to recover the VAT," said Joachim Agrell, VAT partner at Deloitte in Sweden.
"The AG's opinion is strange considering the ruling in Kretztechnik," said Tomas Karlsson, a VAT partner at Ernst & Young in Sweden.
In Kretztechnik in 2005, the ECJ held that if the mere acquisition and holding of shares is not an economic activity, an activity within the scope of VAT, the sale of such shares cannot be an economic activity either. Entitlement to reclaim input VAT incurred on costs is dependant upon the use to which those costs are to be put. As AB SKF argued that the sale of their shares is part of their business, they should be able to recover their input VAT.
"This is one of the most important VAT cases for years," said Karlsson.
There could be important implications for businessses if the ECJ follows the AG's opinion and rules that SKF is not entitled to recover the VAT.
Although the amount of money involved in this case will be considerable, the figure has not yet been disclosed. "The facts in an advance rulingcase do normally not disclose any amounts since the advance ruling only delivers an opinion on a specific technical tax issue," said Agrell.
Advocate general (AG) Mengozzi has issued his opinion in Skatteverket v AB SKF stating that AB SKF is unable to recover its input VAT from the transfer of shares as the transaction was VAT exempt under article 135. 1.f of the VAT directive.
The AG said the transaction to dispose of a subsidiary constitutes economic activity and falls within the scope of VAT. However, in what some commentators see as a strange move, the AG decided that the services AB SKF acquired, including advisory and legal services, were directly linked to the VAT-exempt share transfer and any VAT on those costs are not recoverable.
AB SKF, the parent company of a Swedish industrial group, argued that the costs for disposing of shares in a subsidiary should not be linked to the share transfer but to the general business of AB SKF and since it carries out fully taxable business, it should be entitled to recover VAT.
"Apart from the AG's view, several arguments have been put forward to show that AB SKF is entitled to recover the VAT," said Joachim Agrell, VAT partner at Deloitte in Sweden.
"The AG's opinion is strange considering the ruling in Kretztechnik," said Tomas Karlsson, a VAT partner at Ernst & Young in Sweden.
In Kretztechnik in 2005, the ECJ held that if the mere acquisition and holding of shares is not an economic activity, an activity within the scope of VAT, the sale of such shares cannot be an economic activity either. Entitlement to reclaim input VAT incurred on costs is dependant upon the use to which those costs are to be put. As AB SKF argued that the sale of their shares is part of their business, they should be able to recover their input VAT.
"This is one of the most important VAT cases for years," said Karlsson.
There could be important implications for businessses if the ECJ follows the AG's opinion and rules that SKF is not entitled to recover the VAT.
Although the amount of money involved in this case will be considerable, the figure has not yet been disclosed. "The facts in an advance rulingcase do normally not disclose any amounts since the advance ruling only delivers an opinion on a specific technical tax issue," said Agrell.