Swedish Cross-border Group Relief Cases – AG Kokott’s Opinions – Swedish rules compatible with EU Law
Advocate General (AG) Kokott has issued her opinion in two cases concerning claims for group relief made by Swedish companies for the losses of wholly-owned direct and indirect subsidiaries established in other EU Member States. The opinions are in line with the AG’s consistent approach that the “no possibilities” test in Marks & Spencer (C-446/03) is unclear and should therefore be abandoned. This view, expressed in Commission v United Kingdom (C-172/13) and in A Oy (C-123/11), has repeatedly not been followed by the CJEU.
In Holmen AB v Skatteverlet, a Swedish parent company sought the deduction of losses in a wholly-owned Spanish company which it held indirectly through a Spanish subsidiary. The Holmen group planned to either liquidate the sub-subsidiary and the subsidiary, in the same year and in that order, or merge the sub-subsidiary into the Swedish parent. If the Spanish sub-subsidiary had also been Swedish, loss relief would have been available and its losses could have been used or carried forward in the Swedish parent. In Memira AB vSkatteverlet, a Swedish parent sought the deduction of losses in a wholly-owned German subsidiary. The Memira group planned to merge the subsidiary into the Swedish parent. Swedish law allowed loss relief in mergers only if the transferring company had taxable income in Sweden.
AG Kokott held, in both cases, that the differences in treatment under Swedish law did amount to a restriction on the freedom of establishment. However, the AG took the view that the restrictions were justified by the preservation of balanced allocation of the power to impose taxes between Member States.
Firstly, the AG concluded that the use of the losses in the Spanish sub-subsidiary, and in the German subsidiary, by Holmen and Memira respectively, undermined Sweden’s fiscal autonomy because it required Sweden to adapt its tax legislation to account for losses that had originated solely from the operation of the Spanish and German tax systems. In the AG’s view, this conclusion followed from the fact that the losses in the sub-subsidiary were primarily a consequence of Spain’s 2011 reform, which had limited the amount of profits that companies could set off against losses incurred in previous years, and from the fact that German law did not allow losses to be transferred by way of merger.
Secondly, the AG concluded that the accumulated losses, which were initially regarded as non-final (as under German and, with limitations, Spanish law they could be carried forward), could not subsequently become final losses by the fact that they could not be further carried forward after the merger or liquidation of the loss-making companies. This conclusion was underpinned by the AG’s view that the “no possibilities test” in Marks & Spencer required taxpayers to exhaust all possibilities to use the losses in the Member State in which they had arisen, including the possibility of transferring the losses to a third party. The AG therefore took the view that the losses were not final also because neither Holmen nor Memira had exhausted that possibility.
Thirdly, the AG concluded that it could not be inferred from the fact that the decision in Marks & Spencer had not differentiated between final losses of subsidiaries and sub-subsidiaries that the CJEU had implicitly allowed parent companies to use the final losses in a sub-subsidiary. In Holmen, the AG stressed that, because it was still in principle possible for the direct Spanish parent company to set off the losses in Spain, there was a fundamental precedence for setting off the losses in the sub-subsidiary against the Spanish parent company over the setting off of the against the indirect Swedish parent (Holmen). The losses in Holmen’s Spanish sub-subsidiary were therefore not final in respect of the Swedish indirect parent.
An Assessment to Tax is never ‘stale’, but it might be out of date: HMRC v Tooth
This article briefly discusses the key points arising out of the decision of the UK Supreme Court in HMRC v Tooth  UKSC 17. The case considered (1) whether a discovery assessment could become “stale” and (2) the meaning of the phrase “deliberate inaccuracy”.
VATA 1994 s.47, Agency, Onward Supply Relief, & Double Taxation
On 12 July 2021, the First-tier Tribunal (Tax Chamber) (“FTT”) released its decision in Scanwell Logistics (UK) Limited v HMRC  UKFTT 261 (TC), rejecting the taxpayer’s claim for onward supply relief (“OSR”).
Whilst OSR is now limited, post-Brexit, to goods imported into Northern Ireland for onward supply to the EU, the FTT’s discussion of agency under section 47 of the Value Added Tax Act 1994 (“VATA”) is of broader interest.
The case serves as a reminder of the significant financial consequences that can result from errors in tax planning, as Scanwell was ultimately held liable for £5.7 million in unpaid import VAT despite the fact that the imported goods almost immediately left the UK (which, if properly planned, could have meant Scanwell was relieved from liability to import VAT).
Draft Finance Bill 2022—tax avoidance measures
Helen McGhee, senior associate at Joseph Hage Aaronson LLP, considers the draft Finance Bill 2022 clauses published on 20 July 2021 in relation to tax avoidance and recent updates to the tax avoidance regime.
Getting Closer: A Global Minimum Tax on Corporations
On 1 July 2021, US Treasury Secretary Janet Yellen announced that countries representing over 90% of global GDP had agreed to a global minimum tax on corporations (“GMCT”). The GMCT seeks to put a floor on tax competition on corporate income through the introduction of a minimum corporate tax of at least 15%. Whilst certain elements give rise to positive expectations, some caveats should be noted. Much will depend on (1) the outcome of future political negotiations and (2) the detail of the drafting at international and national levels.
The DBKAG & K (CJEU) decision: an opportunity for investment funds?
On 17 June 2021, the European Court decided the joint cases K (C-58/20) and DBKAG (C-59/20) regarding whether the supply of certain services constituted the “management of special investment funds”, benefiting from the VAT exemption enshrined in Article 135(1)(g) of Council Directive 2006/112/EC.