Sweden: Acquisition of loss-making company, special rule to limit use of losses

Limited ability to deduct deficits from previous tax years in certain cases

Limited ability to deduct deficits from previous tax years in certain cases

The Supreme Administrative Court (Högsta förvaltningsdomstolen) on 3 June 2021 issued a judgment concerning loss-making companies and acquisitions of such companies that are intended to circumvent the tax evasion rules.

Following the court’s decision, the government on 10 June 2021 issued a “stop letter” (a type of procedure used in exceptional instances, when it is determined that application of a tax provision has unintended consequences and may lead to a significant tax loss for the state) that addresses trading involving loss-making companies and sets forth a special limitation rule with regard to the ability to use losses from previous years.

In the case before the court, a loss-making company had sold all its assets through intra-group transactions and then had only one receivable from its parent company and a deferred tax receivable attributable to losses from previous years. The loss-making company was then acquired by another entity, and after the change of ownership, the buyer assumed responsibility for the debt owed by the loss-making company to the parent company.

The Supreme Administrative Court’s decision considered the treatment of acquiring control of a “shell company” and whether there was a limited right to use the loss. Following this decision, the government issued the “stop letter” and announced that it would propose a special limitation rule that would limit the ability to use losses from prior years after a change of ownership when, in view of the circumstances, it can be assumed that acquisition of the losses was the predominant reason for the change of ownership.

The limited use of such losses is effective 11 June 2021, and the government is now to follow up by shortly issuing a proposed rule for consultation.

Read a June 2021 report (Swedish) prepared by the KPMG member firm in Sweden