CJEU - Recent Developments in Direct Taxation 2021

S. 1461. Introduction

The story about case C-484/19 Lexel AB is a continuation from the conference on pending cases in 2020. It was decided by the Court of Justice of the European Union (“CJEU”) on 21 January 2021. The Swedish company Lexel AB is a member of a group with 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 was a provision (now altered to some extent, but, as seen below, the EU law aspects are 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 is to receive 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 engage in 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 ...