Interest deductions on internal debt regarding internal restructuring – ruling from the supreme administrative court

On 1 December 2022, the Swedish Supreme Administrative Court (“HFD”) ruled in favour of a Swedish company in relation to deductions for interest on internal debt (HFD 3660-22). The debt was to be put in place in connection with an internal restructuring process, in which a Swedish company planned to acquire all the shares of the current Swedish group parent, thus becoming the new Swedish group parent.

For deductions on internal debt relating to the acquisition of shares to be allowed, the acquisition must be determined to be motivated by business reasons, which is what HFD had to assess. According to prior rulings by HFD, it is necessary to separate internal restructuring measures from other types of measures which are more directly connected to the business, e.g., internal acquisitions of shares versus external acquisitions of shares. The latter is generally considered to be motivated by business reasons while internal restructuring measures are generally not.

However, considering how the interest deduction rules have changed over time with respect to the business reasons requisite, there is room to consider certain internal restructurings as being sufficiently motivated by business reasons according to HFD. It was noted that in the case at hand, the internal restructuring and acquisition was a step in an ongoing restructuring process, which was proceeded by external acquisitions. It was further noted that the restructuring process would not have been initiated if the external acquisitions had not taken place. As such, the planned internal restructuring was considered directly connected to external acquisitions and therefore sufficiently motivated by business reasons.