The Lindahl tax team summarises two items of good news in the sphere of tax that arise in the case of restructurings: the proposal by the Ministry of Finance concerning new rules on deductions for previous years’ losses and a ruling from the Supreme Administrative Court stating that refusing interest deductions for intra-group acquisitions of shares is contrary to EU law in some cases.
PROPOSAL FOR NEW RULES ON DEDUCTIONS FOR PREVIOUS YEARS’ LOSSES
On 22 January 2024, the Ministry of Finance published a memorandum proposing changes to the rules on deductions for previous years’ losses.
Previous years’ losses are subject to a number of limits on deductions. The rules are complicated and can mean that losses disappear or are blocked after a change of ownership, partly through what is referred to as the limit on loss relief passed to an acquisition target and also the group relief limit and the merger relief limit. There are some exceptions to the rules that can be difficult to apply. The proposal, which is intended to apply from 1 January 2025, mainly concerns the limit on loss relief passed to an acquisition target and, in brief, entails the following:
- Losses from previous years that exceed 200 per cent of the expenditure for the acquisition disappear after a change of ownership in accordance with current rules. That limit is increased to 300 per cent. That means that a higher loss can be retained after changes in ownership. The function of the rule itself remains unchanged.
- The exemptions from the limits are being broadened. There is currently an exemption from the limits when the previous owner already had a controlling interest in the loss-making company before the change of ownership. Nevertheless, holdings in groups of minority-owned associated companies were not covered by the exemption. There is now a proposal whereby the exemption could also be applied to groups of minority-owned associated companies. That means that losses must not be limited when the controlling interest has not changed in practice, for example if an individual owns shares both privately and through a company.
- There is also a proposal for a simplification of the regulations when a group of persons acquire a certain proportion of the votes in a loss-making company over a period of time, what is referred to as “flockregeln” [the flock rule]. At present, ownership changes among small owners are considered over a five-year period. That period is being changed to three years. The criteria for when smaller shareholders’ purchases and sales of shares result in a change of ownership in which the limit on loss relief passed to an acquisition target becomes relevant are adjusted by such means as raising the limit for how small participations are to be included. The limit on loss relief passed to an acquisition target will now only take effect when two or more persons have each acquired participations in the loss-making company with at least 20 per cent of all the votes or have together acquired participations in the loss-making company with more than 50 per cent of all the votes. It is also proposed that the provision be broadened to include indirect acquisitions, i.e. when the group of natural persons acquires participations in a company that has a controlling interest over a loss-making company.
- Finally, the rules on which capital contributions are to be included in the calculation of the expenditure for the acquisition are clarified. This also applies when the capital contribution is made to another company in the same group as the loss-making company. The change means that the expenditure for the acquisition will not be reduced by any such capital contributions, even if it is a question of an indirect acquisition.
THE SUPREME ADMINISTRATIVE COURT FINDS THAT REFUSAL OF A DEDUCTION OF INTEREST IN AN INTRA-GROUP ACQUISITION IS CONTRARY TO EU LAW
According to a recent judgement of the Supreme Administrative Court, applying the targeted interest deduction restriction rules to intra-group acquisitions of shares would be contrary to EU law if the acquisition was not judged to be commercially motivated.
The circumstances of the case, in brief, were as follows. A AB and B AB form part of an international group in which the group needed to carry out a restructuring by means of a number of intra-group transactions. As part of the restructuring, A AB would acquire all the shares in C from group company D. The acquisition was financed by a loan on market terms, including interest, taken out by B AB from group company D (the company was domiciled in another EU country).
Skatterättsnämnden [the Swedish Revenue Law Commission] found that the interest expenses were subject to the main rule on deduction restrictions for interest in Chapter 24, section 19, first paragraph IL because the acquisition was not commercially motivated but came about for other internal group reasons.
Nevertheless, the Supreme Administrative Court found that refusing a deduction would be contrary to freedom of establishment under EU law. This was due, among other things, to the fact that, according to the preliminary materials, the provision was not intended to apply to interest payments that did not give rise to any tax advantage. The Supreme Administrative Court therefore considered that the exception rule was applicable and a deduction of interest expenses should therefore be permitted.
Lindahl's comments:
Both the rules on losses and the targeted interest deduction restriction rules are complex regulations that limit the possibility of carrying out internal group restructurings and for that reason we welcome both the memorandum from the Ministry of Finance and the judgment of the Supreme Administrative Court.
If you have any questions, you are welcome to contact us at Lindahl.
