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The Court of Justice of the European Union dismisses the Swedish interest limitation rules
In a judgement of 20 January 2021, the Court of Justice of the European Union ruled that the Swedish interest deduction limitation rules which were introduced 2013 constitute a restriction of the freedom of establishment.
In a judgement of 20 January 2021, the Court of Justice of the European Union ruled that the Swedish interest deduction limitation rules which were introduced 2013 constitute a restriction of the freedom of establishment.
The Swedish provision at hand denies the tax deductibility of interest on certain types of intragroup loan arrangements (Chapter 24, section 10 a–10 f of the Income Tax Act, ITA). However, according to Chapter 24, section 10 d ITA interest on intragroup loans are tax-deductible if the income corresponding to the interest expense would have been taxed at a rate of at least ten per cent under the legislation of the state in which the beneficial owner of the income was domiciled (the ten per cent rule). This applies if the loan arrangement has not been established for the purpose of achieving a material tax benefit (the statutory exception). Interest payments between two Swedish entities (especially within a fiscal unity) will in most cases not create any tax benefit.
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