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Loss deduction in Sweden for final losses in cross-border mergers
The Swedish Tax Agency has published a statement that a Swedish parent company in a cross-border merger has a right to loss deduction for final losses incurred by a subsidiary established within the EEA. The right to the deduction is made through an analogy with the Swedish rules on corporate group deductions. Taxand Sweden explores the reasoning behind the statement and the impact it may have on the right to group relief in cross-border mergers.
The Swedish rules on corporate group deductions allows for Swedish parent companies to deduct final losses incurred by subsidiaries established in other EEA States, but only if the foreign subsidiary has been put in liquidation and the liquidation-process has been completed. The rules do not cover situations when the subsidiary has ceased to exist through a cross-border merger. No other rules in the Swedish tax legislation allows for deductions for final losses incurred by foreign subsidiaries. The Swedish tax rules regulating the taxation in qualified mergers are only applicable if both companies are liable to tax in Sweden.
There are no Swedish tax rules allowing Swedish parent companies to deduct final losses incurred by subsidiaries in other EEA States, when a subsidiary has ceased to exist through a cross-border merger. In the case A Oy, C-123/11 the ECJ concluded in short that the principles established in the case C-446/03 Marks and Spencer, are still valid and principally applicable to a cross border merger between a Finnish parent company and a Swedish subsidiary. Likely as a response to the A Oy case, the Swedish Tax Agency has published a statement containing the Agency´s view on when/whether a Swedish parent may be allowed a loss deduction following a cross-border merger.
According to The Swedish Tax Agency, it is justified that Swedish tax legislation as a general principle do not allow Swedish parent companies to make deductions for losses incurred by foreign subsidiaries in mergers between the companies. However, EU-law makes it necessary to make exceptions from this general principle (see C-446/03 Marks and Spencer and A Oy). The Swedish Tax Agency therefore accepts a right to group relief for final losses incurred by a subsidiary established in a Member State that has ceased to exist through a cross-border merger. The amount deductible is similarly limited as the rules on corporate group deductions, and the deduction will be allowed only if no company affiliated with the parent company has business activities where the subsidiary is established.
The Swedish Tax Agency also stated that the same conclusion could be drawn in relation to subsidiaries established in EEA states.
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Also published in Thomson Reuters' Taxnet Pro, 20 September 2013
The Swedish rules on corporate group deduction have been criticised for being too limited, and the right to group relief in cross-border mergers has the same limitations. The Swedish legislation might therefore still be in conflict with EU-law, the rights to group relief may be more extensive in the individual situation. It may for instance be noted that in the A Oy case, the group in question contained additional Swedish companies with business activities, a fact that would prohibit loss deduction under the Swedish rules.
The statement however opens up some possibilities even under the view of the Swedish Tax Agency for loss deduction upon cross border mergers between Swedish parent companies and subsidiaries established in other EEA States.