• Service: Skatt
  • Type: Newsletter Article, Regulatory update
  • Date: 2013-04-03

European Commission – do the Swedish interest deduction limitation rules violate EU rules? 

In 2009, the deductibility of certain interest payments was abolished in order to prevent certain types of tax planning using interest deductions. The rules, however, only applied to interest on debts to group companies provided the loan funded an intra-group stock purchase. Loans that funded external acquisition of shares were not covered by the rules. The scope of the rules was extended as per 1 January 2013. The rules now cover all intra-group interest payments. A few exemptions apply.

Both previous and current interest deduction limitation rules have been criticized. It has been questioned whether the rules are compatible with EU law.

In a January 9, 2013 letter the European Commission stated that it had received several complaints regarding the Swedish interest deduction limitation rules. According to the European Commission, it appears that intra-group interest paid to a Swedish company is deductible under the 10 percent rule as the Swedish corporate tax rate is 22% (previously 26.3%). The European Commission considers it unlikely that domestic intra-group loans can ever be considered to have arisen in order to obtain a significant tax benefit. In practice, the interest deduction limitation rules only affect interest payments to companies that are not resident in Sweden. The European Commission believes that similar problems may arise when interest is paid to a pension fund that is not domiciled in Sweden. The European Commission considers that the rules constitute an indirect discrimination for companies and pension funds who are not resident in Sweden and, accordingly, that the Swedish interest deduction limitation rules violate the freedom of establishment.

According to the European Commission the purpose of the Swedish rules is not only to discourage purely artificial arrangements, as also the presence of a small tax benefit in itself, is sufficient to deny the deduction. Further, the European Commission considers that the Swedish rules go beyond what is necessary as deductions may be denied, even if the conditions of the loan are arm’s length, if the transaction is not considered primarily commercially motivated. The European Commission also considers that the burden of proof is problematic and that the Swedish rules do not meet the requirements of legal certainty.

Given the above the European Commission has requested that the Swedish Government replies whether it agrees with the European Commission's conclusion and, if so, what measures are intended to be taken to eliminate the violation and the time frame within which such measures will be implemented. The Government provided its opinion to the European Commission on 20 March 2013 through the Swedish Ministry of Finance.

In summary, the Government considers that the Swedish interest deduction limitation rules do not mean any restriction of the freedom of establishment, as the rules are applied regardless of where the lender is domiciled and whether the borrower is limited or unlimited liable to tax. Furthermore, the possibility to demonstrate a minimum level of taxation or to claim exemption from the ten percent rule apply irrespective of whether it is a question of a Swedish or a foreign entity. If the interest deduction limitation rules would mean a restriction of the freedom of establishment, the Swedish Government considers that the restriction can be justified by the need to maintain a balanced taxation combined with the need to prevent tax avoidance. In addition, the Government considers that the rules are proportionate and that the evidence issue follows general principles, viz who claims a deduction has the burden of proof.

The next step is that the European Commission takes part of the Swedish Government's response and, subsequently, decides whether an infringement procedure needs to be initiated. Taxpayer who submitted complaints to the European Commission will be able to take part of the result of the European Commission's evaluation.



For more information contact:

Carina Möllefors, Telephone +46 (0)8 723 94 67,




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