The Growth Agency’s main assessment is that group contributions for FY 2019 should not affect the possibility of receiving support during 2020.
On June 12, The Swedish Agency for Economic and Regional Growth (“the Growth Agency”) issued a press release concerning group contributions while receiving short-time work allowance. The Growth Agency states that the regulations for short-time work allowance "required a comprehensive interpretation of existing legislation" and that "the question of value transfers is complex", which has resulted in the authority continuously developing and clarifying its answers.
The Growth Agency states in its press release that "the main rule is that a company cannot receive support for short-time work and at the same time make value transfers during the support period or in close connection with it" in light of "the basic condition for a company to be entitled to support for short-time work, is that the company suffer serious financial difficulties”. Furthermore, an assessment must be made in the individual case, and it is up to the applicant to prove that it has met the requirements for the support.
Value transfers in the form of dividends
In the previous press release dated May 18, The Growth Agency stated that value transfers taking place up until March 16, 2020, i.e. when the short-time work allowance started to apply, cannot be regarded as an obstacle to the granting of support. The main position is that companies should not do any share dividends during any part of the year that the support is received, except for dividends that occurred before March 16, 2020.
Furthermore, the Growth Agency’s opinion is that a dividend should be considered executed at the time of payment, but also states that "the underlying decision of the Annual General Meeting (AGM) can also affect the allowance" by the fact that a company "cannot be considered to have serious financial difficulties, if a dividend is decided upon at the AGM during a period when the company receives short-time work allowance, even though the actual distribution of the dividend is planned for a later date”.
Different assessment regarding group contributions
The Growth Agency make the assessment that group contributions should not be paid during any part of the year when the allowance is received, thus meaning that "group contributions for the financial year 2019 do not affect the possibility of receiving allowance". Furthermore, the same applies to companies with a broken financial year, for group contributions relating to financial year which has ended prior to March 16, 2020.
As a basis for this, the Growth Agency states it should not be necessary to revise allocations in the form of group contributions that took place during a financial year when allowance was not received through AGM resolutions after the end of the financial year. This may affect other group companies in that if the beneficiary companies change their year-end allocations for 2019, the company that receives the group contribution also needs to take the same measures. This in turn can lead to errors in tax calculations and taxes. Thus, compared with share dividends, the Growth Agency is of the opinion that a change of the share dividend decision is a far less intrusive measure to take, which causes the assessment to differ between the two value transfers.
Many companies have been waiting for clarifications from the Growth Agency regarding their opinion of group contributions and the timing of submission. The information that group contributions for fiscal year 2019 should not affect the possibility of receiving support is certainly welcomed by many, as this has been a significant issue for many companies. At the same time, we have seen that some companies have already taken measures in this regard by tearing up the financial statements with the purpose to reverse group contributions, and that these companies would likely have acted differently, should they have had had this information previously.
The announcement indicates that the Growth Agency considers that the time for the submission of group contributions falls earlier than the AGM (as may be understood already at the end of the financial year), which is in line with how we have reasoned in previous TaxNews. The Growth Agency's revised position on the issue is probably due to the fact that this has been widely debated, and it cannot be ruled out that the Government's assessment that group contributions should not constitute an obstacle to obtaining the transition state aid, may have had an impact.
At the same time, we note that the Growth Agency is of the opinion that a group contribution constitutes a transfer of value, a view that we share. However, a number of issues remain, including how the Growth Agency views group contributions for broken financial years ending after March 16, 2020, for fiscal year 2020, and possibly also for fiscal year 2021.
Further clarification is necessary in relation to whether a company has right to support for short-time work, if the company at submission of a group contribution simultaneously receives a contribution that compensates for the transfer of value that has occurred following the group contribution.
Additionally, the question remains as to how the Growth Agency views group contributions that are being handed down, i.e. whether a group contribution from a parent company to a subsidiary is to be regarded as a transfer of value or not. Further clarifications are required also in this regard.
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.
Please feel free to contact us if you have any questions about the regulations for short-time work.
The article in Swedish
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