Changed practice as regards VAT liability on short-term property lets

Sweden’s Supreme Administrative Court has upheld a preliminary ruling broadening the scope of VAT liability as regards short-term letting of commercial premises. This makes possible the deduction of input VAT on investments and operating costs.

The appealed preliminary ruling related to the issue of a landlord’s right to add VAT to the rent charged for a one-month lease of a retail unit that had not previously been let. The unit was a “pop-up store”, designed to be used in various companies’ retail operations over shorter periods of time. Despite the fact that each individual lease did not meet the requirement of a permanent lease in an operation subject to VAT, the court took the view that the landlord’s intention was to lease the premises for such operations on a continuous basis. The Swedish Tax Agency contested the preliminary ruling on the basis of reference to the previous practice in which each lease period must meet the requirement of a permanent lease, which in the Tax Agency’s view, means that the lease must cover a period of at least one year, or meet the criteria for an indefinite lease as defined in Chapter 12 of the Swedish Land Code.

In its appeal to the Supreme Administrative Court, the Tax Agency argued that the preliminary ruling could not be limited to pop-up stores but would be generally applicable to short-term lets. This, in the Tax Agency’s view, constituted a broadening of the area of application which is inconsistent with the legislators’ intentions. The court rejected the Tax Agency’s objections and also found that short-term lets entitle the landlord to register for VAT on a voluntary basis if there is an intention to let out the premises over an extended period of time for use by operations subject to VAT.

Comment

The ruling provides greater scope for landlords to register for VAT on a voluntary basis when leasing premises to tenants on a short-term basis, as well as to charge VAT on the lease of premises in office hotels and commercial premises used as flexible workplaces, etc. The Tax Agency, itself, has stated that the issue of short-term lets that was tried in this case is generally applicable. We assume that the Tax Agency will, now, no longer require a specific lease period as a criterion for voluntary VAT registration.