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On May 18, the Swedish Agency for Economic and Regional Growth published a press release about dividends in connection with receiving support for short-time work allowance. An in-depth legal analysis has been undertaken concerning value transfers such as share dividends and group contributions to ensure legal certainty in the application of the Act on support for short-time work allowance.

As mentioned in previous TaxNews, the Government has not provided any clarification on what is regarded as "share dividends and other similar payments", neither in the legislative draft, nor in the new bill (2019/20:166) on stronger measures in relation to the corona virus.

Group contributions are assessed the same way as dividends

The Agency for Economic and Regional Growth states in the press release that “a company that considers itself to have sufficient liquidity and is in such a position to decide on a payment of any kind, whether it is a payment to shareholders or others, which in practice means reducing the wealth base of the company, cannot reasonably be considered to have such serious financial difficulties that it would be eligible for state aid". Furthermore, the Agency for Economic and Regional Growth emphasizes that "group contributions should be assessed in the same way as dividends in the context of granting short-time work allowance".

The Agency for Economic and Regional Growth also states that "the assessment shall be made for each individual employer, i.e. the beneficiary of the state aid" and that this "means that companies that are part of a group structure are assessed individually", which indicates that other group companies that distribute or make group contributions and do not receive state aid, should not affect the assessment.

Consideration of the full financial year

Although the Agency for Economic and Regional Growth’s assessment is that "value transfers made up until March 16, 2020 should not cause the beneficiary to not meet the eligibility requirements", it is emphasized that "a longer period of time than only the months in which the company receives state aid" must be taken into account. This is because the Agency for Economic and Regional Growth wants to be able to capture any misuse of the state aid if a company issues value transfers in close connection to, prior to, or after the support period, since the presumption in these cases is that the company has not been in such serious financial difficulties as is required. It is up to the company to prove that the criteria for short-time work allowance are met. 

KPMG Comment

No further details have been provided on the in-depth legal analysis undertaken by the Agency for Economic and Regional Growth other than the information stated in the press release. The press release raises several questions, in particular regarding group contributions and the time of its submission. For example, if a group contribution is included in the annual financial statement for 2019, but is adopted at the annual general meeting after March 16, 2020, when should the group contribution be deemed to have been made, or more specifically, when should the “assets in practice have been reduced” in the manner intended by the Agency? Should the group contribution be considered to have been made at the end of the financial year, when the actual booking of the group contribution was done, when the Board of Directors signs the annual financial statements or when the annual financial statements are adopted during the meeting?

Furthermore, if a group contribution has been made, and at the same time a shareholder's contribution has been returned to the provider, could this be a hindrance when assessing the right to state aid? In such case, the transfer of assets has in practice been neutralized and it can thus be argued that the company remains in an unchanged financial situation. Another question related to this, is whether it is possible to offset a distribution of a dividend or a group contribution made after March 16, by issuing a shareholder contribution before, or in connection with the Agency for Economic and Regional Growth’s clarification.

It is worth noting that it seems that the Agency for Economic and Regional Growth  is open to arguments that the conditions for state aid have been fulfilled, despite the fact that a dividend or group contribution may have been paid close to the time period for support. With this statement, the Agency for Economic and Regional Growth  seems to consider mainly smaller companies, where remuneration for working shareholders are paid through for example salary combined with dividends. The Agency also mentions in the press release that a legislative change would be required in order for smaller companies to be exempted from the restriction to make value transfers while receiving state aid, which in turn indicates that the main rule is that all companies and types of value transfers, regardless of size, are covered.

KPMG continuously monitors the updates on value transfers in connection with the receipt of short-time work allowance and will update this text on an ongoing basis.

You are welcome to contact us should you have any questions about the regulations for short-time work allowance.

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The article in Swedish

Mattias Bergman
+46 70 939 66 64
mattias.bergman@kpmg.se

Joanna Droh
+46 76 640 27 69
joanna.droh@kpmg.se