Position statement: Significance of registration for the property of taxable person and the right to deduction

New: 2022-12-20

The right to deduct input tax is not in itself dependent on a company being VAT registered. If the conditions for deduction are met, deduction must therefore be allowed regardless of whether registration has taken place or not ( C-400/98, Breitsohl, paragraph 38 and RÅ 2002 note 26). Registration for value added tax is, however, a necessary condition for a taxable person to be able to fulfill his obligations and exercise his right to deduct.

When the Swedish Tax Agency has decided to register someone for value added tax, i.e. has accepted that someone is a taxable person and thus has an intention to conduct an economic activity, the registration is a confirmation that the Swedish Tax Agency has, at the time of the decision, assessed that this company is a taxable person person and conducts an economic activity . Once this has been established, it would be contrary to the principles of protection of legitimate expectations and of legal certainty to, apart from in cases of fraud or abuse, retroactively reconsider this decision due to later occurring or non-occurring circumstances (see e.g. HFD 2021 ref. 52 p. 17 and case C-110/94, Inzo,pp. 20-22). Such later occurring or non-occurring circumstances can e.g. be a lack of funding or a business idea that cannot be implemented. However, this only applies if the person who applied for registration was in good faith. A person cannot be considered to be in good faith if the person has provided incorrect or misleading information or if the person has omitted information that is significant for the Tax Agency’s assessment of the financial activity.

What the Swedish Tax Agency has accepted is the business or activities that a person clearly indicated in connection with the registration notification. A notification of change with an additional activity that does not entail a changed assessment of the basis for the registration does not give rise to the need for a new assessment to be made of the previous registration decision. This means that the registered person cannot be considered to have received any justified expectations regarding the right to deduct for the additional business in addition to the business or businesses that were previously accepted through the Tax Agency’s decision on registration.

If someone has been registered for value added tax in good faith, and the applicant has thus provided the information that the Tax Agency needed to be able to make the decision on registration, then the applicant must be able to rely on the fact that the property of taxable person applies until the person ceases to operate or until the time when the Swedish Tax Agency announces a change of opinion. Such a notification can, for example, be a decision on de-registration or a written notification to the person who is registered that he is no longer considered to be acting as a taxable person for certain activities.

There may also be situations where a change in the legal situation occurs through a change in practice, e.g. when the Swedish Tax Agency has made an assessment of a legal issue which later turns out to be incorrect through a judgment from the EU Court of Justice or HFD. Such changes in practice may also affect the status of the registered person as a taxable person. A change in practice concerns the legal assessment to be made as opposed to situations where intent is to be assessed. A normally prudent actor must always keep himself informed of the legal situation. The Swedish Tax Agency therefore believes that if it is a question of a change in practice, a message that is directly addressed to the individual is not required.

If the business has not ceased or if the Swedish Tax Agency has not notified a changed opinion about the person’s status as a taxable person, deduction for input tax cannot be refused on the grounds that the business does not meet the conditions for being an economic business (HFD 2021 ref. 52, paragraphs 17 and 20 –21 and the Swedish Tax Agency’s legal case commentary on  the importance of registration when assessing the right to deductions ).

The VAT registration and the property of a taxable person means that outgoing tax must be reported for the taxable sales made within the country in the economic activity. This also means that there is a right of deduction for input tax on purchases relating to these transactions. The Tax Agency cannot therefore make a decision with retroactive effect and deny deductions on the basis that the person is not a taxable person if the purchase has been made for the business that clearly emerged in connection with a registration notification. This also applies if any outgoing tax has not yet been reported in the business.

The Swedish Tax Agency can, however, deny a deduction for input tax on other grounds if there is justification for it. In the same way that applies to all taxable persons, no deduction can be made if the input tax is covered by a deduction ban . Deductions can also not be made if the purchase relates to other than economic activities . It can e.g. be purchases that only relate to private use and that therefore do not relate to the business assessed by the Swedish Tax Agency at the time of registration.

The Swedish Tax Agency also considers that a registration does not have such significance that someone is entitled to a deduction when the right to deduct is not linked to an outgoing transaction that is to be taxed , e.g. if the transaction is covered by an exemption from tax liability . This applies regardless of whether the registration was solely intended for this activity. Registration for VAT can never give a company any legitimate expectations of receiving a deduction which is in conflict with both ML and the VAT directive ( Skatteverket’s position The importance of registration for the property of taxable person and the right to deduction ).

According to the Swedish Tax Agency’s assessment, the registration decision is therefore meaningless when the business consists of transactions that are exempt from tax liability. The same applies to a business that consists only of non-economic transactions, i.e. transactions without compensation. The person must himself, as a conscious and cautious actor, make an assessment of the transactions that are carried out on an ongoing basis. This means that regardless of whether the Swedish Tax Agency has registered someone for value added tax, the person himself must assess whether the transactions that are made are to be regarded as sales or whether these are taxable and are made within the country.

If the person has wrongly imposed output tax on the transactions which are rightfully exempt, then there is no right to a deduction for such amount for a buyer because it is a question of wrongly charged tax . The buyer may instead demand correction from the seller, normally by obtaining a credit note.

When the Swedish Tax Agency announces that the business no longer meets the criteria for being an independently run economic activity or that the business has previously been terminated, it may be relevant to  withdraw  or  adjust deductions for input tax  regarding the assets in the business.