Management of limited partnerships incurs obligation of VAT reporting

The Supreme Administrative Court has found that compensation received by a part owner for management of his or her limited partnership is to be seen to comprise such sales as to incur liability for VAT. In contrast with previous practice where a part owner was seen to comprise a managing partner and not a seller of services to the limited partnership, the Court has now determined that this is a question of sales.

In previous Tax matters we have commented on the testing of the VAT issue in the case regarding Priveq G.P. II AB (Priveq) and its management of a risk capital fund operated in the form of a limited partnership. Briefly speaking, Priveq had entered into a partnership agreement with a number of investors to manage the limited partnership and, thereby, incurred the right to debit a management fee for these services. Priveq did not report VAT on the management fee, motivated by the view that the fee should only be seen to comprise an advance payment of Priveq’s results with the aim of covering the costs of the ongoing management of the limited partnership. However, the Supreme Administrative Court concluded that the management fee was paid regardless of the actual, final results in the limited partnership and determined, instead, that according to the agreement, Priveq provided management services in return for compensation. Consequently, Priveq was seen to provide services implying an obligation to report VAT on the management fees.

Comments

In previous cases in the Supreme Administrative Court, the special rules in the Partnerships Act regarding the rights and obligations of part owners and the allocation of results, etc. have, it is true, been seen to imply that a deviation could be made from the general concept of sales applied to VAT reporting. The Supreme Administrative Court had, instead, in this decision, emphasized the content of the partnership agreement in place and determined that there was a direct relationship between the executed management services and the received fees. According to our understanding, the outcome in the case would, probably, had been the opposite had the partnership agreement been designed differently, or if the part owner, without a partnership agreement in place, would have received income only in relation to the results and ownership share in the limited partnership.