Sweden: Interest deductions incurred to finance intra-group share acquisition allowed
Supreme Administrative Court decision
The Supreme Administrative Court (HFD) held that a rule denying deductions for interest incurred to finance an intra-group acquisition of shares that was not “commercially justified” was contrary to EU law.
Summary
As part of a group restructuring, a wholly owned subsidiary of the parent company acquired shares in other subsidiaries. The acquisition was primarily financed by a loan from another group member under market-based terms. The parent company sought clarification from the Tax Court on whether interest deductions with respect to the debt could be denied under a rule that denies deductions for interest incurred to finance an intra-group acquisition of shares unless the acquisition is commercially justified. The Tax Court majority held that it would be against the EU's freedom of establishment to refuse interest deductions under the rule, and the tax authority appealed to the Supreme Administrative Court (HFD).
The HFD, referencing legal cases HFD 2022 ref. 49 and HFD 2011 ref. 90 I–V, agreed with the Tax Court that the intra-group acquisition of shares was not commercially justified because it was driven by organizational reasons. However, the HFD also found that refusing deductions would infringe on the freedom of establishment, as the rule is not intended to address interest payments that do not provide a tax benefit. Consequently, the HFD majority (with one member dissenting) held that deductions for the interest expenses were permitted.
Read a January 2024 report (Swedish) prepared by the KPMG member firm in Sweden