Major shortcomings in the guidance and practice regarding the distinction between single and composite supplies

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VAT SWEDEN Should a toy enclosed in the supply of a meal be taxed separately at a 25 % VAT rate or should it be deemed ancillary to the supplied meal and be taxed at the 12 % VAT rate for food? Should the supply of a spare part used in a repair be treated as a separate supply of a good or as ancillary to the repair service? Is the lunch served as a part of a conference arrangement to be taxed at the 12 % reduced VAT rate for food or at the 25 % standard VAT rate as for the conference arrangement?

VAT is often considered one of the most complex and burdensome taxes for business to deal with. Over the years, the VAT system has grown increasingly difficult to understand and to handle for business as well as tax authorities and courts. One of the most complex issues is how to assess transactions consisting of several elements. For the purpose of VAT, one must determine whether a transaction consisting of several elements is to be deemed one single supply or two or more distinct supplies.

Although this is one of the most important issues concerning VAT, neither the Swedish VAT Act nor the VAT Directive provides any guiding provisions in this respect. Instead, business is dependent on guidance from the Swedish Tax Agency and the courts.

Anna Sandberg Nilsson and Hussein Abdali at the Confederation of Swedish Enterprise have made a survey of the large number of statements and references found in the Tax Agency’s VAT Manual for 2012 in respect of the distinction between single and composite supplies. The survey show a lack of coherence in the guidance and practice, and the outcome can seem more or less random. Furthermore, the survey shows insufficient reasoning in the assessments, diverse treatment for different industries, different treatment for similar transactions and references to obsolete case law.

Moreover, Ernst & Young have, on behalf of the Confederation of Swedish Enterprise, studied the treatment of single or composite supplies in Europe. In summary, the survey shows that no general and uniform practise regarding the treatment of single or composite supplies exist within the EU, Norway or Switzerland. Numerous countries have no or very little national legislation, guidance or case law in this regard. Countries with an established and general guidance often build there legislation on principles established by the EU case law. Several countries apply an assessment based on percentage of the price.

The major shortcomings in the Swedish practice undermine fundamental legal principles, such as fiscal neutrality and equal treatment, and add to the already high material and administrative burden that VAT system entails. Urgent measures to deal with these shortcomings are thus needed. Furthermore, the diversity in treatment between countries in Europe may result in double taxation or double non taxation. This lead us to believe that there may be reason to revise the VAT Directive with regard to the treatment of supplies consisting of several elements in order to reach a more uniform practice.

• Letter to the Swedish Tax Agency regarding the Treatment of Single or Composite Supplies

o Annex 1 Survey: VAT Treatment of Single or Composite Supplies in the Swedish Tax Agency’s Manual, 2012 (available in Swedish only)

o Annex 2 E&Y Pan-European Survey: Questionnaire - VAT treatment of composite supplies

o Annex 3 Ernst & Young Pan-European Survey: VAT treatment of composite supplies

















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