Questions
- Can it be confirmed that the Partner Company and the Partners’ owners (partners) are considered as one taxable person?
- Can it be confirmed that the Partner Company can deduct VAT on expenses relating to the Partner Company’s taxable activities, even if the expense is borne by one of the Partner Company’s partners?
Reply
- Yes, however, see setting and justification
- Yes
Description of the actual conditions
Spørger is a partner company that runs an auditing business.
Questioner consists of a number of partners, each of whom has an ownership interest in the Partner Company. The partners are typically private limited companies or individuals.
The partners – or the Partners’ owners – work exclusively as a partner in the applicant’s company.
Asker runs a VAT-liable business and is VAT registered. The enquirer settles VAT in accordance with the rules of the VAT Act and deducts VAT from costs relating to the business subject to VAT, cf. the relevant rules of the VAT Act. This is i.a. expenses for office operations, maintenance, canteen, auditing and the like.
Questioner has hired staff. These are staff accountants, bookkeepers, administrative staff, canteen staff, etc.
The partners have agreed that the individual partners must bear a number of costs in connection with their work as partners in the applicant’s VAT-liable business. This can be expenses for the individual partner’s office equipment for home office or at the office address, including office furniture, office lamps, etc. It is also expenses for work-relevant IT equipment, including PC, printer, tablet, etc. also for use in home office. Finally, the individual partner must bear the costs of the company car, including payment for concluded car leasing agreements.
The reason why it is the individual partner who bears these work-related costs is that the partner company wants an administratively simple system for cost reasons and therefore does not want to hire administrative staff to handle this.
It is thus the individual partner who purchases the necessary work-relevant office equipment, IT equipment and leasing car. The purchased work-relevant office equipment, IT equipment and the leasing cars are invoiced to the individual partner company, or to the individual accountant, who also pays for office equipment, IT equipment and the leasing cars. The partners / owner companies and the individual auditors are not VAT registered, as they do not conduct business subject to VAT as an auditing company, or as an independent auditor. The VAT-liable accounting firm is operated in the Partner Company.
Questioner’s opinion and reasoning
In 2012, Spørger contacted the Danish Tax Agency to obtain a written statement of the VAT treatment of these issues.
In an advisory opinion, the Danish Tax Agency has considered the questioner and the questioner’s partners to be one person liable for VAT when the questioner is a partner company. The enquirer therefore has access to a VAT deduction for costs incurred by one of the enquirer’s partners. The VAT deduction stipulates that the general provisions provide access to VAT deduction.
With the request for this binding answer, the enquirer wishes to confirm the VAT treatment that the Danish Tax Agency has previously informed the enquirer in the advisory opinion.
The questioner was in connection with the case processing of the advisory opinion from 2012 for a meeting with case officers from the Danish Tax Agency. The advisory opinion has been prepared by the Tax Center in collaboration with SKAT Jura.
It is noted that practice has not changed since the partner company received the advisory opinion.
When the partner company and partners are considered as one legal entity – in the same way as applies to I / Ss – the partner company has a VAT deduction for costs that are invoiced to one of the partners.
SKAT’s Legal Guidance section DA11.1.2.3 states that purchases relating to the activities of a VAT-registered partnership can be considered delivered to the partnership, even if the cost is borne by one of the stakeholders personally, cf. the judgment of the European Court of Justice in case C- 280/1 O, Polski Trawertyn.
The judgment concerned costs incurred and invoiced to the stakeholders prior to the partnership’s establishment and VAT registration. In practice, it is thus recognized that costs relating to the partnership’s VAT liable activities can be deducted via the partnership’s VAT registration, even if the invoice is issued to the stakeholders and is paid by the stakeholders, as the costs are considered delivered to the VAT registered partnership.
According to the VAT rules, an I / S and a P / S are both considered to be personally run companies, where I / S and the stakeholders, and P / S and its partners – are considered as one legal entity.
The decisive factor for the right to deduct VAT is thus that the costs relate to the partnership’s / partner company’s taxable business.
As described in the guidance statement – it is our opinion – that the partner company still has a deduction for VAT on expenses relating to the partner company’s VAT-liable activities, regardless of whether the owner companies / partners are VAT registered for the sale of goods or services to other than the partner company.
The partner company has been in a telephone dialogue with Skat Jura, which agrees that practice has not changed since the receipt of the advisory opinion in 2012.
The Danish Tax Agency’s advisory opinion has been submitted to the Danish Tax Agency in connection with the request for a binding answer.
The Danish Tax Agency’s recommendation and justification
Question 1
It is requested to confirm that the Partner Company and the Partners’ owners (partners) are considered as one person liable for VAT.
Reasons
Before a decision can be made as to whether the applicant can deduct VAT on expenses that relate to the applicant’s activities subject to VAT, but are incurred by one of the partners in the applicant, cf. question 2, it must first be decided whether a partner in the applicant and The applicant is one or two taxable persons in connection with the purchases in question.
It is stated that the inquirer is a partner company which conducts auditing business. The partners are typically private limited companies or individuals. According to the information, the private limited companies and individuals are not VAT registered, as they do not conduct VAT-liable business as an auditing company or as an independent auditor. The VAT-liable accounting firm is run in question.
On this basis, the Danish Tax Agency finds that the partners cannot be considered to act in their own capacity as taxable persons in connection with the purchases they make for the use of the applicant’s VAT-liable activities. In connection with the purchases, it is thus only the questioner who acts as a taxable person.
No decision has been made as to whether the partners in other contexts may can be considered taxable persons.
Setting
The Danish Tax Agency recommends that question 1 be answered with “Yes, see recommendation and justification”.
Question 2
We would like to confirm that the Partner Company can deduct VAT on expenses relating to the Partner Company’s VAT-liable activities, even if the expense is borne by one of the Partner Company’s partners.
Reasons
It follows from established administrative practice that purchases relating to the VAT-liable activities of a registered partnership may be included in the purchase VAT, even if the expense is borne by one of the stakeholders personally. Cf. VAT guidance 1995.
The judgment of the European Court of Justice in case C-280/10, Polski Trawertyn, relates only to expenses incurred by the stakeholders before the formation of the partnership, as part of the formation and preparation of the company’s taxable transactions. However, the Board has assessed that the administrative practice, according to which expenses incurred by the stakeholders after the foundation for the use of the partnership’s taxable transactions, could give the partnership the right to deduct, could be maintained.
For the sake of good order, it is noted that in the Board’s view, in this practice it does not prevent a partnership from deducting VAT on purchases used for the partnership’s taxable transactions, but held by one stakeholder that it is VAT registered for others. activities. On the other hand, in the Agency’s view, the partnership has, in accordance with section 37 (1) of the VAT Act, 1 and 2, no right of deduction for purchases made by the stakeholder for private purposes or for use by the stakeholder’s possible own taxable activities.
Asker is a partner company. Pursuant to section 5, no. 22 of the Danish Companies Act, a partner company is a special form of limited partnership. In the Agency’s view, a limited partnership must be regarded as a special form of partnership and thus as covered by administrative practice.
The Agency therefore finds that the enquirer has the right to deduct purchases for use in the enquirer’s VAT-liable transactions in cases where the purchase is made by a partner. It is assumed that the general conditions for the right to deduct are met.
No decision has been made on the specific purchases.
Setting
The Danish Tax Agency recommends that question 2 be answered with “Yes”.
The Tax Council’s decision and justification
The Tax Council agrees with the Danish Tax Agency’s recommendation and justification.
Legal basis, preparatory work and practice
Question 1
Legal basis
§ 5, no. 22), of the Companies Act (Statutory Order no. 763 of 23 July 2019) has the following wording:
Ҥ 5. For the purposes of this Act:
1) (…)
22) Partner company:
A limited partnership, cf. section 2, subsection 2 of the Act on Certain Business Enterprises, where the limited partners in the company have contributed a certain amount of capital, which is divided into shares, cf. Chapter 21.
23) (…) “
Section 2 of the Act on Certain Business Enterprises (Executive Order no. 249 of 1 February 2021) has the following wording:
§ 2. For the purposes of this Act, a partnership means a company in which all participants are personally, without limitation and jointly and severally liable for the company’s obligations.
PCS. 2. A limited partnership means a company in which one or more participants, the general partners, are personally liable, without limitation, and if there are several, jointly and severally liable for the company’s obligations, while one or more participants, the limited partners, are liable to a limited extent for the company’s obligations. For limited partnerships established after 1 June 1996, the fully responsible participants must have administrative and financial powers.
PCS. 3. (…) “.
§ 3 pieces. 1, § 37, para. 1 and 2 of the VAT Act (Statutory Order no. 1021 of 26 September 2019) has the following wording:
Ҥ 3. Taxable persons are legal or natural persons who conduct independent economic activity.
PCS. 2. (…)
§ 37. Companies registered in accordance with §§ 47, 49, 51 or 51 a may, when calculating the tax liability as input tax, cf. § 56, subsection 3, deduct the tax under this Act for the company’s purchases, etc. of goods and services that are used exclusively for the company’s deliveries, which are not exempt from tax under section 13, including deliveries made abroad, cf. 6.
PCS. 2. The deductible tax is
1) the tax on goods and services supplied to the enterprise;
2) the tax which, according to section 11, is payable on goods acquired from another EU country,
3) the tax which, according to section 12, is due to goods which the company has imported from places outside the EU, cf., however, section 69, subsection. 2, and
4) the tax to be paid in accordance with §§ 6 and 7.
PCS. 3. (…) “
Practice
C-202/90, Seville City Council
Business as a tax collector under Spanish law had to be considered as an independent business. The collectors themselves provided the personnel and equipment required for the operation of the company. The collectors thereby bore the financial risk of their business. Although the municipality could give instructions to and exercise disciplinary control over the collectors, and third parties could hold the municipality responsible for the collectors’ behavior when they acted as authorities, it was still an independent business. The decisive factor in this connection was the liability of the debt collectors according to their contractual relationship with the company as well as their liability for damages suffered by third parties when the debt collectors did not act as authorities.
C-355/06, JA van der Steen
A natural person’s status as an employee is not affected by the fact that the person is the sole company member, sole employee and director of the employer company. The precondition for this is that the person performs all the work in the name of the employer company and at its expense in accordance with an employment contract, which binds the person to the company.
C-280/10, Polski Trawertyn
The case concerned VAT deductions for expenses in connection with the purchase of a quarry, which were to be used for economic activity in a company.
The expenses were invoiced to a company’s stakeholders prior to the company’s incorporation, ie. before the company formally existed.
The European Court of Justice replied that the said stakeholders can be considered taxable persons for VAT purposes and are therefore in principle entitled to a VAT deduction.
If it is not possible for the stakeholders to make deductions, the company must instead be entitled to make deductions.
The fact that the invoices were issued to the company’s stakeholders could not mean that the company did not have the right to deduct VAT. The reason why the invoice was not issued to the company was that the company had not yet been established and there was a coincidence between the persons who had paid the purchase VAT and those who made up the company.
C-420/18, 10
The case concerns whether a member of the board of a foundation carries on an independent, financial activity.
The Court states, first, that even if the member of the board has only one board post, this does not affect the fact that it is an economic activity, as the members are appointed for a period of four years, which gives the fee received a lasting character. is a business of a certain lasting nature carried out for remuneration.
The court then decides whether the economic activity is carried out independently.
Second, the Court rules that the member is not liable to his employer by an employment contract or by any other legal relationship which creates an employee-employer relationship.
Excerpt from Legal Guide 2021-1, DA3.1.3 Definition: Self-employment
“(…)
Economic activity can only be carried out independently. Employees and other persons are therefore not covered by the VAT rules to the extent that they are liable to their employer by an employment contract or by another legal relationship which creates an employee-employer relationship with regard to working and pay conditions and the employer’s liability. See Article 9 (1) of the VAT Systems Directive. 1 and Article 10.
(…)
In assessing whether it is a self-employed company or not, according to the case law of the European Court of Justice, emphasis is placed on whether the person receives a salary and / or is obligated to an employer by an employment contract. See the judgment in Case C-202/90, Ayuntamiento de Sevilla.
If the person does not receive pay and is not obligated to an employer by an employment contract, then it must be examined whether the legal relationship between the person and the employer nevertheless creates an employee-employer relationship within the meaning of Article 10 of the VAT Systems Directive.
In such an examination, emphasis is placed on whether the person:
- itself provides the personnel and equipment required for the performance of the business. See the judgment in Case C-202/90, Ayuntamiento de Sevilla.
- itself bears the financial risk of the company. See the judgment in Case C-202/90, Ayuntamiento de Sevilla, and in Case C-355/06, JA van der Steen.
- acts in its own name
- acts at his own expense or at his own risk (or whether the person, on the other hand, acts at the employer’s expense and his responsibility). See the judgment in Case C-355/06, JA van der Steen.
(…) “
Excerpt from Legal Guide 2021-1, Section DA11.1.2.3 Correct Cost Carrier
“It is a fundamental condition of the right to deduct VAT that the expense is borne by a taxable person who has acted in that capacity at the time of purchase. See ML § 37 (1) and Article 168 of the VAT Systems Directive.
In addition, it is a condition that the product or service is delivered to the company. See ML § 37, para. 2 (1) and Article 168 (a) of the VAT System Directive.
There is thus only a right to deduct VAT on goods and services that can be considered delivered to the taxable person who has a right to deduct VAT.
(…)
It is in principle a condition for the goods or service to be considered to have been “delivered to the company” that the taxable person is in possession of a regulatory invoice issued to the purchasing company. See
- Judgments of the European Court of Justice in the cases
- C-338/98, Commission v Netherlands and
- C-165/86, Intimate CV
- The National Tax Court’s ruling in SKM2009.139.LSR .
However, when invoices for investment costs have been issued to the stakeholders of a company as a result of the company not yet being formed, the company has the right to deduct VAT. See the judgment of the European Court of Justice in Case C-280/10, Polski Trawertyn.
In the case, it was assumed that the investment costs had been incurred for the purpose of the company’s taxable transactions and that there was an identity coincidence between the persons who had paid the purchase VAT and those who were participants in the company. It is thus a condition that the expense can be considered to relate to the company’s VAT-liable activities and must not be considered to be expenses which are, for example, the shareholder’s expense. See also SKM2007.125.VLR .
(…)
The European Court of Justice has ruled that a company’s stakeholders who make the necessary investments for the company’s financial activities prior to the company’s establishment and VAT registration can be regarded as taxable persons and thus have the right to deduct VAT. See the judgment of the European Court of Justice in Case C-280/10, Polski Trawertyn.
It is a condition that the expenses incurred can be regarded as relating to the company’s VAT-liable activities and must not be regarded as expenses which are, for example, the shareholder’s expenses. See SKM2007.125.VLR .
(…)
Purchases relating to the VAT-liable activities of a registered partnership may be deemed to have been delivered to the partnership, even if the expense has been borne by one of the stakeholders personally. See the judgment of the European Court of Justice in case C-280/10, Polski Trawertyn on expenses incurred by a company’s stakeholders before the company’s incorporation and VAT registration.
Excerpt from the VAT Guide 1995, section J.1.1.1
“(…)
The VAT on the company’s purchases, which have been delivered to and paid for by the company, can usually be included in the purchase VAT, even if the company subsequently has the purchase price fully or partially refunded from a third party, and there are others – possibly. unregistered – co-owners. Refunds from third parties may occur, e.g. in cases where work is carried out on a real estate used by the company.
Purchases relating to the VAT-liable activities of a registered partnership may be included in the purchase VAT, even if the expense has been borne by one of the stakeholders personally.
(…) “
Question 2
Legal basis
See question 1.
Practice
See question 1.
Source: skat.dk
