The Ministry of Finance's memorandum on transition support to companies. The rules are proposed to enter into force on July 1, 2020.
On May 15, the Ministry of Finance published a memorandum on the proposal for business transition support originally announced by the Government on April 30.
Business transition support could be given to companies whose total net sales for March and April 2020 were less than 70 percent of their total net sales compared to March and April 2019, provided the decrease in net sales is an effect of the spread of COVID-19. The support includes natural and legal persons who conduct business in Sweden and are registered for F-tax, and whose net sales amounted to at least SEK 250,000. A certificate from an auditor must be attached to any application for support over SEK 100,000.
Business transition support is not available if the company or its parent company during the period March 2020 – June 2021 executes or decides upon a profit distribution or equivalent. Furthermore, the company must have done what could reasonably be required to exhaust the possibilities of obtaining insurance compensation, damages, similar compensation or other state support for such lost sales or costs on which the support is calculated.
There is no right to business transition support for companies where the company or any other company within the same group is included on the EU’s or the OECD's list of jurisdictions that are considered non-cooperative tax jurisdictions.
The amount of the business transition support will equal (1) 75% of the business’ net sales reduction percentage, of (2) the business’ fixed costs for March and April 2020. The Government has previously provided the following example: assuming that the fixed costs amount to SEK 500,000 and the loss in net sales is 50%, the business transition support amount would equal SEK 187,500 (37.5% of SEK 500,000).
In practice, the boundary between fixed and variable costs is not always straightforward. To facilitate application, fixed costs are defined by an exhaustive list that mainly includes costs for rent and leasing, interest, depreciation on fixed assets, electricity, water, wastewater, internet and telephony, heating, cleaning, waste management, insurance, animal feeding, franchise fees, permits and royalties and licensing fees for intellectual property rights.
Fixed costs do not include costs that are possible for the company to avoid through such measures as may reasonably be required in the event of a sudden decline in production or sales of goods or services. Also, fixed costs do not include costs which results in corresponding income of another group company.
The business transition support shall be reduced by received insurance compensation, damages or other similar compensation or other state aid for such lost net sales or expenses on which the aid is calculated.
The transition support is limited to SEK 150 million per company or per group if several companies within the same group are eligible for the support. Furthermore, the support to companies that have large fixed costs in relation to their nominal net sales decrease is limited to nominal loss of net sales.
The Swedish Tax Agency decides on the business transition support and the support is paid out by crediting the tax account. The Tax Agency is given extensive opportunities for investigation and control, including auditing. In addition, a special crime is introduced called business transition support crime (Sw. omställningsstödsbrott).
Application for business transition support must be submitted to the Swedish Tax Agency by August 31, 2020 at the latest. The Swedish Tax Agency's website states that companies will be able to apply for the support via a new service in My Pages on www.skatteverket.se. When the application site opens, detailed guidance will be published.
The rules are proposed to enter into force on July 1, 2020.
It may be noted that a company is not entitled to business transition support if the company is part of a group in which a group company is resident in a state or jurisdiction that is included on the EU’s or the OECD's list of non-cooperating tax jurisdictions. The latest updated list from the EU dates from the end of February 2020 and includes twelve countries including the Cayman Islands and Panama. Thus, a company in an international group will not be eligible for the support, if the group has companies in any of these countries even though the establishment was made entirely without tax reasons.
Furthermore, the company or its parent company may not decide on or execute a dividend or equivalent during the period March 2020 – June 2021. The types of value transfers referred to are those regulated in Chapter 17-20 the Companies Act (2005: 551). Group contributions are not mentioned in this context. This can be compared with the regulations regarding support for short-time work, where the discussion about value transfers in the form of share dividends and group contributions has been substantial. For example, on May 18, the Swedish Agency for Economic and Regional Growth (sw. Tillväxtverket) issued a clarification that group contributions should be assessed the same way as dividends in the context of granting short-time work support, see TaxNews.
Business transition support is granted for a proportion of a company's fixed costs for March and April 2020. The proposal contains many criteria and raises many questions. An application for support will involve extensive documentation and calculations.
If you have questions about the regulations or would like help to calculate and / or apply for support, you are welcome to contact us.
Update – Proposal submitted to the Council on Legislation
On June 2, the Government’s proposal on business transition support was submitted to the Council on Legislation for its review. The Government will also notify the European Commission about the business transition support. The European Commission’s state aid review may result in changes to the business transition proposal. In addition to the new law on business transition support the government will also issue a new regulation, in which the main regulations on the support will be outlined.
The press release on June 2 clarifies that companies which give group contributions are not prevented from qualifying for business transition support. This is important news and a welcomed clarification, which can be compared to the still existing uncertainties around group contributions in connection with the rules on short-time work allowance. An interesting aspect is whether this assessment potentially could lead to an analogous application on the assessment of group contributions in the context of granting short-time work allowance. However, one should have in mind that the state aids have different backgrounds and eligibility requirements.
The article in Swedish
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