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The Swedish Government's draft amended proposal on cross-border group deductions

Following a round of consultation, the Swedish Government has now published amended draft legislation on cross-border group deductions for overseas losses. To a certain extent the Government has listened to criticism during the consultation process from, among others, KPMG. However, with regards to many aspects nothing has changed compared to the previous proposal. In our view, the requirements in order for the legislation to apply are stringent and the proposal is still contrary to EU law in many respects. Furthermore, in practice the legislation will be applicable in relatively few cases. KPMG will hold a breakfast seminar on 18 March 2010 to go through the legislation.

In September 2009 the Ministry of Finance issued proposed legislation providing for group deductions for losses in cross-border situations, see TaxNews No. 13, 2009. The proposal has now been followed by an amended proposal issued to the Council on Legislation (Sw. Lagrådet). According to the proposed legislation a Swedish parent company is allowed to deduct a final loss in a directly held subsidiary within the EEA, when it has been liquidated. Unlike the equivalent Swedish domestic rules, no actual group contribution or a transfer is required in order to obtain a deduction. The previous draft introduced a number of conditions. One of the most criticized conditions refused deduction for the overseas loss if the loss making subsidiary had disposed of a significant part of its business to another group company within a ten year period. This condition has now been removed. On the other hand, the condition that the group should have no remaining business in the loss state and that the deduction should be reduced by any transfers of untaxed values within a ten year period before liquidation remain. Thus, the Government ignores the additional administrative burden as well as the difficulties to evidence the loss which the ten year period is expected to cause.

The earlier proposal introduced certain restrictions on the right to give group contributions between Swedish group companies, namely that the deduction may not create a loss in the parent company. This restriction has now been taken out, see TaxNews No. 3, 2010. However, the equivalent restriction has been retained for cross-border situations and provides that the deduction may not exceed the profit of the Swedish parent. In our view, retaining this restriction only in respect of cross-border situations may be contrary to EU law.

Furthermore, to avoid a double deduction for the same loss, the Government has introduced a further restriction for the write down of value of trading stock.

KPMG Tax will host a breakfast seminar in Stockholm and Malmö on 18 March 2010 where we analyze the amended proposal, its practical application, its compatibility with EU law and the remaining question marks.

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[2010-02-22]