Sweden: Interest-deduction limitation rules contrary to EU law; EC formal notice

The European Commission notified the government that Sweden’s interest-deduction limitation rules are contrary to EU law.

Sweden’s interest-deduction limitation rules are contrary to EU law.

The European Commission formally notified the Swedish government that Sweden’s interest-deduction limitation rules are contrary to EU law.

The restriction under the interest-deduction limitation rules (effective 1 January 2019) applies only if the debt “exclusively or almost exclusively” (that is, 90% to 100%) was incurred in order for the “community of interest” to receive a significant tax benefit.

If the debt relates to an intra-group acquisition of shares in a company that is part of the community of interest, deductions may only be allowed if the acquisition is “substantially” commercially justified. Under the rules, interest deductions are not allowed in connection with loan arrangements between related companies that are actually established in the EU / EEA, even if the loan terms are commercial.

The EC found the 2019 interest-deduction limitation rules are contrary to the freedom of establishment. The EC found no justification for restricting a taxpayer’s ability to deduct interest within a community-of-interest situation in cross-border situations.
 

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

 

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