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.
Draft Finance Bill 2020–21—promoters and enablers of tax avoidance schemes
Helen McGhee, senior associate at Joseph Hage Aaronson LLP, shares her insights on the Draft Finance Bill 2020–21 and its impact on promoters and enablers of tax avoidance schemes.
Apple and Ireland Win €13bn State Aid Appeal
The General Court of the European Union has today annulled the Commission’s decision regarding two Irish tax rulings in favour of Apple. The Commission had considered that the two rulings constituted State Aid, granting Apple €13bn in unlawful tax advantages.
The Price of Property
Helen McGhee looks at the present state of UK tax rules that must be considered when owning and disposing of UK property.
Inheritance tax problems in Finance Bill 2020
The rules on excluded property trusts are due to change with effect from royal assent. These changes are complex, and the new rules can have an unexpected and retroactive effect. Emma Chamberlain explores these rules to determine whether it may be necessary to exclude the settlor going forward as a beneficiary.
Trust Registration Service- 5MLD update
HMRC’s Trusts and Registration Service (TRS) was born back in 2017 as part of the implementation of 4MLD. 5MLD has mandated notable amendments to the operation of the TRS that clients and practitioners should not overlook. We have created a Q&A to help to navigate the new upcoming compliance obligations.