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.
The End is Nigh for the Non-Dom Regime
Published in ThoughtLeaders4 Private Client Magazine, Helen McGhee expert analysis of the current state of non-dom tax regime and it's future.
HMRC Makes Changes to COP9
On 14 June 2023, HMRC published a substantially rewritten Code of Practice 9 (“COP9”). Helen McGhee and Megan Durnford set out the key changes implemented as a result of this publication.
Pandora Papers: HMRC issues nudge letters
The Pandora Papers leak of almost 12m documents back in 2021 purportedly exposed the secret accounts and dealings (including potential tax evasion/ avoidance and money laundering) of 35 world leaders (including the late HM Elizabeth II), as well as many politicians and billionaires. The data was obtained by the International Consortium of Investigative Journalists in Washington DC and led to one of the biggest ever global financial investigations.
Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)
Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).
In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1
HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.
This article was first published with ThoughtLeaders4 Private Client Magazine
Tax-Related Measures in the Autumn Statement 2022
On 17 November 2022, the Rt Hon Jeremy Hunt MP, the Chancellor of the Exchequer, unveiled the contents of the Autumn Budget 2022. This comes after the International Monetary Fund (IMF) published its world economic forecast on 11 October 2022. The IMF expects the British economy to grow 3.6% in 2022 and 0.3% in 2023. Other major developed economies are also expected to stagnate next year, namely Spain (1.2%), the US (1.0%), France (0.7%), Italy (-0.2%) and Germany (-0.3%).
This note focuses on tax measures included as part of that statement.