SHARES HELD AS INVENTORY CANNOT CONSTITUTE A LINE OF BUSINESS

Under the rules on transfers at undervalue, a transfer of an asset for consideration below market value is, as a main rule, subject to withdrawal taxation (Sw: “uttagsbeskattning”), i.e., the transferor is taxed as if the asset had been sold at market value. No withdrawal taxation is triggered if the conditions for a qualifying transfer at undervalue are met, one of which — where group contributions cannot be exchanged between the parties — is that the transfer covers the transferor’s entire business, a line of business, or an ideal share thereof.

The case concerned three siblings restructuring their ownership of a property-managing company into a joint holding structure. For one sibling, the shares constituted inventory assets under the rules on building operations. The Board of Advance Tax Rulings had held that the transfer qualified, reasoning that HFD’s case law on securities not constituting a line of business concerned capital assets only. HFD disagreed, holding that securities can form part of a business but can never in themselves constitute one, regardless of whether they are capital assets or inventory assets. The transfer therefore triggers withdrawal taxation for that sibling.

HFD confirmed that the subsequent reverse merger would not trigger immediate taxation and that the holding company’s shares in the surviving company would constitute capital assets after the merger. Certain remaining questions, including the application of the Swedish Tax Avoidance Act, were referred back to the Board.