Swedish interest deduction case referred to the ECJ for preliminary ruling

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The Supreme Administrative Court (SAC) recently decided to refer a case to the European court of Justice (ECJ) for a preliminary ruling. The case concerned a Swedish company that was denied deduction of the interest that the Swedish company had paid to a French affiliate company and if this treatment were compatible with the freedom of establishment. The outcome can have a large impact for similar processes.


The Swedish company paid interest to an affiliate within the same consortium in France. The company then asked for a tax deduction for the interests paid, which was denied by the Swedish Tax Agency on the grounds of chapter 24 paragraph 10d third subparagraph in the Swedish Income tax law (IL).

National Swedish legislation does not allow interest deduction paid to another company within a group of associated enterprises if the main reason for the depth arising is for the associated enterprise to enjoy substantial tax advantages.

The French company that received the payments of interest had large deficits that had arose within the French group, which led to the result that the French company could offset losses against the profits of interest received. From the preparatory works for the Swedish legislation regarding chapter 24 IL, it can be concluded that the regulation was not meant to apply to companies that have the ability to make group contributions. Since the regulations concerning group contributions only applies to companies that are taxable within Sweden, it leads to the effect that cross-border groups are treated differently than groups that is resident within Sweden. The request for a preliminary ruling asks if the Swedish prohibition of deductions of interest has affected the Swedish company with such a difference in treatment that it constitutes an obstacle to the freedom of establishment, which is prohibited by EU law.


The interest deduction regulation in the 2013 version has been both discussed and criticized for a long time. The regulation has also been questioned by the European Commission. The European Commission has regarded the rules as indirect discriminatory, difficult to apply, disproportionate and thereby incompatible with EU law. The Swedish government did not agree with the view of the Commission.

The interpretation made by the Swedish courts has in practice lead to a burden of proof on the taxable company to show that the reason behind the transaction leading up to the debt for which the interest was paid, were not mainly motivated by tax reasons. It will always be more difficult to provide, to a satisfactorily level, that reasons that were not behind a transaction were not the reasons for the transaction, than it is to prove reasons that were the actual reasons for making a particular transaction. In the end, it becomes a matter of subjective opinion which has created both unpredictability and legal uncertainty.

If the ECJ was to reach the conclusion that the aforementioned rules are precluded by EU law, companies in Sweden can rely on this judgement before national courts.
EU law takes precedence over national law when the national law is in conflict with EU law.
It usually takes 1–2 years before the ECJ reach a conclusion and before the applications of the law is clear.

Tax matters will, of course, keep track of the legal development in this case.

Do you have any questions on corporate taxation?

Veronica Eriksson

Veronica Eriksson

Veronica Eriksson arbetar med internationell och nationell företagsbeskattning samt ideella sektorn på PwC:s kontor i Jönköping.
010-213 04 97
Veronica Eriksson works with national and international corporate taxation at PwC in Jönköping.
+46 10 213 04 97

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