Sweden: VAT apportionment rules violate of EU law (Supreme Administrative Court decision)

A Supreme Administrative Court decision concerning VAT apportionment rules

A Supreme Administrative Court decision concerning VAT apportionment rules

The Supreme Administrative Court (SAC) held that rules requiring determination of the deductible proportion of residual input tax in a value added tax (VAT) mixed business with both taxable and tax-exempt transactions based on “reasonable grounds,” violated EU law.


The Swedish Tax Agency (STA) interpreted “reasonable grounds” as requiring that the deductible proportion of residual input tax for the taxpayer’s mixed VAT business be calculated based on the usage of the acquired goods and services.

The taxpayer argued that the deductible proportion be calculated according to the turnover based method, which is the main rule for partial exemption calculation according to the EU VAT directive. The taxpayer further argued that the reasonable grounds rule is not compatible with the VAT directive.

The SAC noted that the reasonable grounds rule had its origin in old legislation from before Sweden entered the EU and was not designed to implement the directive into Swedish legislation. The SAC then held that the reasonable grounds rule does not meet the requirements for clarity, precision and transparency set by the Court of Justice of the European Union (CJEU) for it to be considered an acceptable implementation of the VAT directive into national law. The SAC further determined that in the absence of a valid rule, the taxpayer could rely on the VAT directive’s provisions on apportionment based on turnover.

Read an October 2023 report prepared by the KPMG member firm in Sweden


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