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The Council for Advance Rulings provides a ruling in respect of the new rules on restrictions on Interest Deductions

As from 1 January 2009 certain interest expenses are no longer deductible to prevent tax planning by means of artificial interest deductions. In brief, the new rules restrict interest deductions on loans between companies within the same group. The restriction applies on debt related to intra-group acquisitions of shares.

There are two exemptions from the restrictions:

• If the income corresponding to the interest expense is taxed at a rate of 10% or more (the 10%-rule).

• If the acquisition of shares and the debt to which the interest expense relates are mainly for business reasons.

It has been uncertain whether the rules apply when the acquisition is made by issuing new shares since it is debatable whether or not this is an acquisition from an enterprise. According to the advance ruling, even these transactions are covered by the restriction.

Furthermore, it has been uncertain if the 10%-rule applies when the recipient is a Belgian company. Even though the tax rate in Belgium is 33.99%, Belgian companies benefit from a notional interest deduction (the NID-deduction) which may lead to an actual taxation less than 10%. According to the Council the interest expenses are deductible only if the tax rate is at least 10% after considering the NID-deduction. When answering this question the Council also considered whether the rules are compatible with EC law and the tax treaty between Sweden and Belgium. With four judges against three the Council found that the rules were not contrary to the interest and royalty directive, the freedom of establishment or the double tax treaty.

Another question raised was if the exemption regarding business reasons could apply. The Council found that this exemption did not apply when the main reason was to gain tax advantages by deducting the interest expenses in Sweden. However, the parties agreed that the exemption was applicable when the main reason for the capital contribution was to avoid liquidity problems and a potential bankruptcy. Another form of contribution would have been less tax efficient. The Council did not question this point of view.

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[2009-12-07]