The Supreme Administrative Court decides the Lexel case on the Swedish interest deduction limitation rules

The Supreme Administrative Court has today, on March 22, 2021, issued a decision in the Lexel case. As expected, the court concludes that the interest expenses should be deductible for the company. This is in light of the ruling from the Court of Justice of the European Union (CJEU) on January 20, 2021, which clarifies that the exception to the 10% rule in the  interest deduction limitation rules, applicable between 2013 and 2018, is contrary to the freedom of establishment in Article 49 of the Treaty on the Functioning of the European Union (TFEU), see previous TaxNews.

The case concerns a Swedish company that has been denied a tax deduction, by reference to the exception to the 10% rule, for interest expenses paid to a French group company with tax losses. The exception to the 10% rule states that interest expenses relating to intra-group debt may not be deducted if the main reason for the debt relationship was to create a significant tax benefit for the group.

Following the CJEU’s decision, the case was referred back to the Supreme Administrative Court for a final decision.

In its assessment, the Supreme Administrative Court comes to the following conclusions. It has been clarified that Lexel and the French lender are in the same group and that the level of taxation in France is such that the 10% rule applies. It has also been established that Lexel and the French company would have been able to exchange group contributions if the French company had been Swedish and that the exception to the 10% rule would not have applied to interest payments. Thus, the decision of the CJEU makes it clear that it is contrary to Article 49 TFEU to refuse Lexel a deduction for the interest expenses in question under the exemption. 

Against this background, the court concludes that there is no reason to consider whether the exception to the 10% rule is applicable to interest expenses under Swedish domestic law. According to the court, it follows that Lexel should be granted a deduction for interest expenses.

In light of the CJEU’s decision, the Supreme Administrative Court’s decision was expected. It means that many companies should now have new arguments to put forward to be allowed interest deductions, something we can assist with.

Do not hesitate to contact us if you have questions or would like to discuss.

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The article in Swedish