Sweden’s Supreme Court Rules Bicycle Benefits as Economic Activity Under VAT

The Supreme Administrative Court of Sweden had to settle an interesting case involving a municipality and providing bicycles for its employees. The case clarifies VAT rules relating to taxability persons, specifically the activities of municipalities that, when conducted, trigger VAT.

Moreover, the decision reinforced the broad scope of economic activity under Swedish and EU VAT law and case law, showing that even non-profit-driven actions could have VAT implications.

Matter of the Case and Court Ruling

The municipality in Sweden offered its permanent employees preferential bicycles against gross salary deductions. The rental of the bicycles was granted for 36 months, and the municipality covered the occurred cost by the gross salary deduction.

However, although employees' salaries covered the cost, the municipality would not generate any revenue or profit from this transaction. The issue in this case was whether the municipality's provision of bicycles to employees in exchange for a gross salary deduction can and should be considered an economic activity. 

While deciding on this matter, the Supreme Administrative Court also considered European Court of Justice (ECJ) practices. Under ECJ practice, if a service provider's charges or fees are sufficient to cover operational costs, that constitutes an economic activity. In this case, the gross salary deduction matched the municipality's cost of providing bicycles, indicating an ongoing economic activity.

On those grounds, the Supreme Administrative Court determined that the municipality was engaged in a business-like activity since the arrangement was continuous and organized. Therefore, from a taxation point of view, the municipality acted as a business.

Conclusion

The Court's ruling is significant because it shows how a simple decision to offer benefits to employees, even as an authority that might include the state, its governing bodies, regions, or municipalities, might constitute an economic activity. Economic activity has further implications, as persons involved in those activities are considered taxable under VAT law.

The decision also impacts other taxable persons, such as large companies, who may consider offering their employees this type of benefit.

Source: Swedish Tax Agency