Sweden Shifts VAT Rules on Business Transfers in Exempt Sectors

On June 5, 2025, the Swedish Supreme Administrative Court issued a decision in a case concerning whether VAT is payable on the transfer of a business between companies with VAT-exempt activities. The published decision alters the previous generally applicable rule that the transfer of a business, commonly referred to as the TOGC, even when the company is VAT-exempt, does not distort competition and is therefore out of scope of VAT, as long as the buyer has a higher or similar right to recover VAT.

Background of the Case and Court Decision

The central point of the case was that the company, which only engages in tax-exempt activities and, thus, cannot deduct input VAT, planned to transfer all its operational activities to its wholly owned subsidiary. 

The transfer was intended to encompass all assets associated with the brokerage business, including intangible assets, inventory, customer lists, employees, the brand, and existing contracts. Once the restructuring and transfer were completed, the subsidiary was supposed to take over the operational business, while the parent company would function solely as a holding company.

The issue arose regarding whether the transfer qualifies as a supply of goods or services under the Swedish VAT Law. The company and the Swedish Tax Authority agreed that the business is to be transferred as a going concern, without any change or interruption. Since both entities operate in tax-exempt sectors, no VAT advantage is gained, and the transfer should not be considered a taxable supply. Consequently, the TOGC falls outside the scope of VAT. 

Nevertheless, the company requested clarification on whether the transfer should be considered a supply of goods or a provision of services, claiming that it should not.

After carefully examining all the facts, VAT rules under the Swedish VAT Law, and relevant Court of Justice of the European Union case law, the Supreme Administrative Court ruled that treating the transfer of VAT-exempt business as a transfer out of scope of VAT according to the Swedish VAT Act cannot be justified to prevent distortion of competition. 

More specifically, the Court ruled that the transfer cannot be exempt under Section 38 of the Swedish legislation, since the subsidiary only conducted tax-exempt activities. Therefore, it would not be entitled to an input VAT deduction on the transfer.

Conclusion

With this ruling, Sweden will adopt a stricter approach to the VAT treatment of business transfers in exempt sectors, including real estate, finance, and healthcare. Additionally, the ruling marks a departure from the earlier established practice, which was more permissive. It creates a new, more complex rule for businesses operating in VAT-exempt fields engaging in TOGC.

Source: Swedish Supreme Administrative Court