The case concerned a company (X AB) who intended to transfer a property at less than the market value to a Swedish partnership. Subsequently the partnership would be sold externally at a profit. X AB owned 0.1 percent of the partnership, with the remainder being owned by X AB’s subsidiary C, a Cypriot company. If the profit was shared according to the ownership in the partnership almost all of the profit would be allocated to C resulting in no taxation. Since the procedure resulted in a permanent relief from tax the Council of Advance Rulings held that it is in violation with the purpose of the undervalue transfer regime. Hence, the procedure was deemed to be an act of tax avoidance. The Council did not find that applying the general anti-avoidance act was in violation with EU-law and stated that the transaction should be taxed as if the property was transferred to the partnership at market value.
The Supreme Administrative Court concluded the following. In 2008 the undervalue transfer regime was changed after which transfers of assets at less than market value to and from partnerships were no longer possible. In the draft changes it was stated that when it comes to partnerships the basic requirement, that an undervalue transfer shall not lead to any undue tax benefits, is not fulfilled. However, prior to the change it must have been clear that the purpose was not to use the rules for artificial transactions unconnected with the running of the business in order to avoid tax normally imposed when selling an asset.
The Supreme Administrative Court agreed with the Council of Advance Rulings in that the procedure is in violation with the undervalue transfer regime and therefore arrived at the same conclusion as the Council. Moreover, the Supreme Administrative Court stated that no union law that could be deemed essential to determine the outcome of this case had been found.