The Swedish tax authority published two separate guidelines regarding the official position of the Swedish government concerning when the value added tax (VAT) exemption applies with respect to fund management services.
According to Swedish VAT law, the management of a fund is exempt from VAT if concerning a Swedish UCITS or a special investment fund. Until now, from a Swedish perspective, it has only been possible to apply the VAT exemption if the taxpayer claimed a direct effect of article135.1.g in the VAT Directive.
Under the new guidelines, the Swedish tax authority stated that the term “trading in securities and comparable business” in the VAT law must be interpreted by applying an EU conform interpretation. Hence, the Swedish provision would cover fund management if four criteria are satisfied—that is, the fund would be considered to be a “special investment fund” if:
The tax authority previously stated that a fund must be open for collective investments. This requirement is no longer mentioned. The tax authority previously also expressed that a fund could not be limited to a narrow circle of investors to be regarded as a special investment fund and that it must be possible to redeem the units (or repurchase on request)—in other words, the share must be traded on a regulated market. Given that the tax authority did not comment on these respects, some tax professionals consider that the VAT exemption might have a broader application than what previously had been understood to be the tax authority’s view.
In regard to services that could qualify as management services, the tax authority stressed that the actual operation of the assets is not considered to be a management service and, hence, not exempt from VAT. For example, advice and management of the business operation of a portfolio company is not covered by the VAT exemption rules.
Services outsourced to an external provider is exempt from VAT if the service is essential and specific for the management of the fund. In this regard, the tax authority has changed its position. For example, the provision of IT-operations could be VAT exempt, provided that the supplier has an overall responsibility for the IT-operation of the system and the registrations made in the system.
In summary, the guidelines seem to allow for broader application. For those fund companies that have out-sourced specific services, the services that previous were considered to be subject to VAT might be exempt in the light of the new guidelines.
Finally, note there is currently on-going litigation regarding questions whether the exemption is available when the management concerns funds other than those expressively exempted in the Swedish VAT law. Depending on the outcome in these cases, the tax authority may need to change its position on how to interpret application of the rules as to which funds are covered by the VAT exemption.
For more information, contact a tax professional with the KPMG member firm in Sweden:
Pontus Fornell | +46 8 7239542 | email@example.com
Emma B. Andersson | +46 8 7236136 | firstname.lastname@example.org
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