CJEU - Recent Developments in Direct Taxation 2020

S. 401. Introduction

This year only one case is pending from Sweden: C-484/19 Lexel AB. Nonetheless, it concerns an important issue. A Swedish company, Lexel AB, is a member of a group that has a French parent company, Schneider Electrics. Lexel AB was denied deductions for interest payments to a French company in the same group. The French company could offset the interest payments against its French losses. The basis for the denial is a provision (now altered to some extent but still relevant) in the Income Tax Act (ITA) that interest payments to related companies are not deductible if the main reason for the debt is that the group received a substantial tax benefit.

The provision applies also to domestic payments. However, in this case, the legislative history reveals that deductions should be allowed if the companies are able to provide an intra-group financial transfer, deductible to the payer and taxable to the recipient, thus being able to offset profits and losses within the Swedish group. This is the main Swedish group taxation regime, often referred to as “group contribution ns”. If the French company had been Swedish, it would have qualified for taking part in an intra-group fi...