The Ministry of Finance on 15 May 2020 issued a memorandum announcing the plans to support businesses and companies as they transition following the coronavirus (COVID-19) pandemic.
The business transition rules have an effective date of 1 July 2020.
”Business transition support” could be given to companies whose total net sales for March and April 2020 were less than 70% of their total net sales compared to March and April 2019, provided the decrease in net sales is an effect of the COVID-19 situation. The transition support would be available for natural and legal persons who conduct business in Sweden, are registered for F-tax, and have net sales of at least SEK 250,000.
A certificate from an auditor would need to be attached to any taxpayer application for support in amounts over SEK 100,000.
Business transition support would not be 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 taken certain reasonable steps to exhaust the possibilities of obtaining insurance compensation, damages, similar compensation or other state support for the lost sales or costs on which the support is calculated.
Business transition support would not be allowed for companies (or any other company within the same group) located in a jurisdiction that is included on the EU or the OECD ”blacklist”—the list of jurisdictions that are considered to be non-cooperative tax jurisdictions.
The amount of the business transition support is to equal (1) 75% of the business’ net sales reduction percentage, of (2) the business’ fixed costs for March and April 2020. The government previously provided the following example:
Assume that the fixed costs are 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 distinction between fixed and variable costs is not always straightforward. To facilitate support applications, fixed costs would be 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 would 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 would not include costs that result in corresponding income of another group company.
The business transition support would be reduced by the amount of insurance compensation received, damages or other similar compensation or other state aid for such lost net sales or expenses on which the aid is calculated.
The Swedish tax agency would decide when to provide the business transition support, and the support would be ”paid out” by crediting the tax account. The tax agency would be given extensive opportunities for investigation and control, including auditing. In addition, a new criminal provision would be introduced, ”business transition support crime” (omställningsstödsbrott).
Application for business transition support are to be submitted to the Swedish tax agency, and are due by 31 August 2020 at the latest. The Swedish tax agency's website includes a statement 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.
Business transition support would be granted for a portion of a company's fixed costs for March and April 2020 and, as proposed, the rules contain many criteria and raise many questions. An application for support will involve extensive documentation and calculations.
Note the limitation that a company would not be entitled to business transition support if it is a member of a corporate group that also has a group-member company that is a resident of a black-listed jurisdiction. The latest updated blacklist from the EU (February 2020) has 12 countries listed, including the Cayman Islands and Panama. Thus, a company that is a member of an international corporate group would not be eligible for the Swedish business transition support if the group has companies in any of these countries—even though the establishment of those companies in a listed jurisdiction may have entirely been based on non-tax reasons.
Furthermore, under the business transition support measures, a company or its parent company receiving such support cannot declare a dividend (or equivalent) during the period March 2020 - June 2021. The types of value transfers referred to are those regulated in Chapters 17-20 of Sweden’s Companies Act (2005: 551). Group contributions are not mentioned in this context. This may be compared with the regulations regarding support for short-time work, in which the discussion about value transfers in the form of share dividends and group contributions has been substantial. For example, on 18 May 2020, the Swedish Agency for Economic and Regional Growth (Tillväxtverket) issued a clarification that group contributions are to be assessed in the same way as dividends in the context of granting short-time work support.
The Swedish government on 2 June 2020 submitted the proposal on business transition support to the Council on Legislation for its review. The government will also notify the European Commission about the business transition support proposal. The EC’s state aid review may result in changes to the business transition support proposal. In addition to the new measures for business transition support, the government would also issue a new regulation to detail the main rules regarding the business transition support measures.
A press release (2 June 2020) clarifies that companies that make group contributions would not be prevented from qualifying for business transition support—a position that tax professionals believe is an important and welcomed clarification, given the existing uncertainties concerning 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 (keeping in mind that the state aids have different backgrounds and eligibility requirements).
Read a June 2020 report prepared by the KPMG member firm in Sweden
For more information, contact a KPMG tax professional in Sweden:
Johanna Ahlstedt | +46 70 144 34 55 | email@example.com
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