In a legal position paper dated 19 January 2011 (131 780946-10/11), the Swedish Tax Agency has confirmed its previously announced strict position to the effect that a transfer of a going concern ("TOGC") VAT exemption cannot be applied in case of share transfers. The Tax Agency is of the opinion that a parent company's sale of shares in a subsidiary, where the parent company has been involved in the management of the subsidiary by supplying VAT liable services, cannot be placed on equal footing with a TOGC. The disposal is instead within the scope of VAT, but exempt from VAT.
The Tax Agency surprisingly claims that the ECJ ruling in SKF (C-29/08) cannot be interpreted to mean that where the sale of shares in a subsidiary is equivalent to a transfer of a totality of the assets of that subsidiary, i.e., equivalent to a transfer of that business as a going concern, the sale would not constitute an economic activity subject to VAT. In this connection the Tax Agency amongst other things refers to the purpose of the TOGC provision presented in the ECJ ruling Zita Modes (C-497/01), i.e. to facilitate transfers of undertakings or parts of undertakings by simplifying them and preventing overburdening the resources of the transferee with a disproportionate tax charge which would in any event ultimately be recovered by deduction of the input VAT paid. According to the Tax Agency, the purpose of the provision does not give reason to extend the applicability of the TOGC exemption to share transfers.
The Tax Agency further points out that a parent company and its subsidiaries are separate legal entities and thus also separate tax subjects. A parent company cannot decide to dispose of individual assets of the subsidiary. A subsidiary cannot be seen as an independent part of the parent company (as is the case with a branch). According to the Tax Agency's interpretation only the shares in the subsidiary can be seen as assets in the taxable business of the parent company, and the shares are thus the only assets that the parent company can dispose of.
With reference to the ECJ rulings in C-4/94 BLP, C-354/03 Optigen and C-84/09 X, the Tax Agency argues that a transaction that fulfils the objective criteria for the sale of shares should consequently also be treated and taxed as such. The disposal of shares should therefore fall within the scope of VAT but be exempt from VAT according to the Tax Agency.
Interestingly enough, the Tax Agency has not even mentioned the rulings from the Administrative Court of Appeal in Gothenburg and the Administrative Court of Appeal in Jönköping where the courts concluded that the ECJ ruling in SKF in fact confirms the applicability of the TOGC exemption to cases of share transfers. It should be expected that some of these rulings will be appealed by the Tax Agency to the Supreme Administrative Court for a ruling (although a ruling will in such case be contingent on the Supreme Administrative Court granting leave to appeal).
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