In depth
Previously, the general view has been that transfer of business (TOGC), even when the business is VAT-exempt, does not distort competition and therefore is out of scope of VAT, as long as the buyer has a higher or similar right to recover VAT.
The SAC states that a transfer not subject to VAT may give the buyer a competitive advantage compared to operators who carry out the same type of VAT-exempt business but who do not acquire the assets through a TOGC that is out of scope of VAT. Thus, treating the transfer of VAT-exempt business as a transfer out of scope of VAT according to the Swedish VAT Act cannot be justified to prevent distortion of competition. The SAC upholds the advance ruling of the Board for Advance Rulings and states that an application in accordance with the wording of the relevant provision of the Swedish VAT Act is not contrary to the VAT Directive.
Sweden will thus have a strict application of the Swedish VAT Act that makes restructuring and transactions in VAT-exempt areas (for example, health and social care, real estate and financial sectors) more difficult. The reasoning of SAC implies a risk that also transfers of activities with partial right to recover input VAT cannot constitute a TOGC out of scope of VAT.
This is of significant importance in restructurings and, most importantly, deviates from the previous general view that competition is not distorted if the acquirer has a higher or similar right of deduction.
