Interest deduction rules found contrary to EU rules

In the case at hand, a Swedish company intended to finance an intragroup share transfer by way of a loan from another group company, resident in another EU Member State. The share transfer was part of an intragroup restructuring process which included several intragroup transactions.

According to the Swedish interest deduction limitation rules, deduction on intragroup debt which has been utilised to acquire shares from another company within the same group, is only allowed if the transaction can be considered to have been essentially motivated by business reasons. However, as noted by HFD, the interest deduction limitation rules were introduced to prohibit tax evasion, and the rules would in principle never be applicable on debt between Swedish companies since they generally have the possibility to exchange untaxed income through group contributions (Sw. koncernbidrag).

HFD noted initially that there have been other instances where certain rules within the interest deduction limitation rules have been declared contrary to the freedom of establishment by both HFD and the Court of Justice of the European Union, where the companies in question would have been able to exchange group contributions if both were resident in Sweden.

With reference to the established case law, HFD therefore ruled that the requirement on a transaction that it must have been motivated essentially by business reasons for deduction to be allowed on intragroup debt, is contrary to the freedom of establishment were the lender would have been able to exchange group contributions with the borrower if both were resident in Sweden.