The Supreme Administrative Court found that purpose of the transfer to the partnership was to sell the property, via the partnership, without subjecting the transaction to corporation tax; thus, it was concluded that the transaction was to be taxed as if the property had been transferred at market value to the partnership.
In this case, a Swedish company intended to transfer property at less-than-market value to a Swedish partnership. Subsequently, the partnership was to be sold externally at a profit.
The Swedish company owned 0.1% of the partnership, with the remainder being owned by its subsidiary (a Cypriot company).
If the profit were to be shared according to the ownership interests in the partnership, almost all of the profit would be allocated to the Cypriot company—resulting in no taxation.
Because the transaction would result in a permanent relief from tax, the Council of Advance Rulings (Skatterättsnämnden) found that the transaction was in violation of the stated purpose of the undervalue transfer regime. Hence, the transaction was deemed to be an act of tax avoidance.
The Council also did not find that applying Sweden’s general anti-avoidance act was in violation of EU law, and concluded that the transaction must be taxed as if the property had been transferred to the partnership at market value.
The Supreme Administrative Court agreed with the Council of Advance Rulings, and based its conclusion on the following findings:
- Before changes to the undervalue transfer regime, it must have been clear that a transfer was not related to “artificial transactions”—i.e., that were unconnected with the operation of the business—in order to avoid tax that would normally be imposed when selling an asset.
- In 2008, the undervalue transfer regime was amended, so that a transfer of assets at less-than-market value to and from partnerships was no longer allowable.
- As was stated in the amendments to the undervalue transfer regime, when it comes to partnerships, a basic requirement—that an undervalue transfer is not to result in any undue tax benefits—was not fulfilled in this case.
Thus, the Supreme Administrative Court concluded that the transaction at issue was in violation with the undervalue transfer regime, and arrived at the same conclusion as did the Council. Moreover, the Supreme Administrative Court stated that no EU law that could be deemed essential to determine the outcome of this case had been found.
To read a June 2012 report, prepared by the KPMG member firm in Sweden: Tax avoidance on the sale of property via a limited partnership at undervalue