During 2006 a municipal company, The municipal company, acquired shares in a municipality owned company, The Energy company. The acquisition was financed by a loan from the municipality. From 2009 the loan was covered by the Interest Deduction regime. Therefore, The municipal company wished to borrow money from Kommuninvest AB or a commercial bank to settle the debt with the municipality. To lower the interest the municipality would provide surety for the new loan. When The municipal company had repaid its debt to the municipality the repaid amount would be given as a loan to The Energy company. The Energy company will use the loan to resolve an external debt without any relation to acquisition of shares.
The Council of Advanced Rulings concluded that the Interest Deduction regime is not applicable, neither for the loan from Kommuninvest AB (or any commercial bank) to The municipal company nor for the loan from the municipality to The Energy company. Therefore, the interest payments in both cases are deductible. The Council of Advanced Rulings also concluded that the general anti-avoidance provision is not applicable. The ruling was appealed to the Supreme Administrative Court who agreed with the Council of Advanced Rulings.
This is the latest ruling from the Supreme Administrative Court interpreting the Interest Deduction regime. See TaxNews issue 19, 2011 for our comments on previous rulings from The Supreme Administrative Court interpreting the Interest Deduction regime. Together with a previous ruling, where the Supreme Administrative Court concluded that when replacing a loan the Interest Deduction regime only covers the original amount owned, this ruling shows that the Supreme Administrative Court has made a narrow interpretation of the Interest Deduction regime.