New testing as to whether part-owners can provide management services to a limited partnership without incurring VAT liability

The Supreme Administrative Court will, once again, test the issue of whether the compensation a part-owner receives for providing services to his or her limited partnership is to be subject to VAT. This issue is of major significance for, amongst others, real estate companies and risk capital funds who, in many cases, undertake their operations in the form of limited partnerships or partnerships without reporting VAT on provided services.

In a number of previous decisions, the Supreme Administrative Court that the part-owners’ management of and services provided to their limited partnerships or partnerships did not comprise net sales according the Act on VAT. The matter which is now coming to the fore is if this principle also applies if a part-owner is entitled according to an articles of partnership to compensation for management services regardless of whether there are profits or losses in the company in question. We refer to our comments regarding the Administrative Court of Appeal’s decision in Tax matters, 31 March 2015, (sw: “Transaktioner mellan delägare och kommanditbolag utlöste inte moms”).

Comments

According to our understanding, the above does not, in fact, represent the basic issue which will now be tested in the Supreme Administrative Court. The question is not whether a part-owner in a limited partnership or partnership can execute management services in their company without incurring VAT but, instead, this matter will test the significance of the terms and conditions regarding the management of the company as stipulated in the articles of partnership. The Tax Agency is of the opinion that if the part-owner is ensured compensation on the basis of contractual terms, such compensation is to incur VAT liability in the same manner as the equivalent services executed to another entity, that is, an entity other than the company in which the individual is part-owner. In conjunction with this forthcoming testing by the Supreme Administrative Court, it could be advised to undertake a review of the compensation terms and conditions in existing limited partnerships and partnership structures of this nature.