The Administrative Court of Appeal has determined that the municipalities’ right to compensation according to the municipal compensation system is to be interpreted in the same manner as with a direct application of the Swedish VAT Act. This implies that municipalities have the right to increased compensation for expenses in conjunction with the Swedish VAT Act’s rules on representation.
On 20 September 2013, the Administrative Court of Appeal in Gothenburg announced its decision in the so-called Porsche case, in which the court determined that the Swedish regulations regarding right of deduction of input VAT on represenation costs was not in accordance with the EU VAT Directive. The Porsche case resulted in an increased right of deduction for companies and organisations having had right of deduction of input VAT according to the VAT Act.
The right to increased compensation did not include, according to the Tax Agency’s position statement of 19 June 2014, county council,s local federations or joint federations ( togther referred to as “municipalities”) having the right to compensation for input VAT according to the municipal compensation system. For these taxpayers, the Tax Agency determined that compensation for costs incurred in representaiton would continue to calculated at 90 krona.
The Administrative Court’s in Sundsvall, Case Number 2896-15, has now determined that in payment of compensation for VAT according to the municipal compensation system, the same assessment is to be made as with the deduction of VAT according to the VAT Act. The municipalities’ right to compensation according to the municipal compensation system is, therefore, to be interpreted in the same manner as in the direct application of the VAT Act. The Administrative Court of Appeal’s decision implies, in other words, that the limits applying according to the VAT Act are also applicalbe in calculating the municipalities’ compensation for representation according to the municipal compensation system. The Tax Agency has also, in recently published comments to a legal case (Case Number 131 219909-16/111) informed that it will comply with the Court’s assessment.
After the court’s decision in the Porsche case, a variety of deduction limitations can be applied as regards deduction of VAT in conjunction with representation. The Administrative Court of Appeal’s interpretation implies that municipalities can now also handle their representation deductions according to the guidelines found in the Porsche decision. We have previously written about the various limits, which can be applied in deduction of representation costs resulting from the Porsche decision.
With the aim of, amongst other things, simplifying the application of the regulations concerning representation, the Ministry of Finance has proposed changes, in a memorandum dated January 2016, in the right of deduction of representation costs. With the Administrative Court of Appeal’s decision, the municipalities will also be affected by the Ministry of Finance’s proposal. This change in application is proposed to come into effect on 1 January 2017. Read more about this in previous blog posts in Tax matters.
Contact us for further information as to the regulations applying in conjunction with deduction of VAT on representation.
Author: Sarah Ammar, former employee at PwC.
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