The Swedish Supreme Administrative Court, applying the ECJ ruling in Marks & Spencer, rules that the Swedish rules on group contributions are contrary to EU Law.

Sweden operates a system under which a company may make a group contribution to another company. The group contribution is deducted from the taxable profits of the contributing company and is accounted for as taxable income by the recipient company.

Under Swedish law it is required that both the contributing and the recipient company are liable to tax on business income in Sweden.

The Swedish Supreme Administrative Court, applying the ECJ’s decision in Marks & Spencer, held that a Swedish parent was entitled to deduct a cross border group contribution made to its Dutch subsidiary. The contribution was made during the tax year in which the Dutch subsidiary was finally liquidated.

The Court distinguished between losses which became unusable through the trading position of the company and losses which became unusable through the operation of foreign tax provisions. Thus while the contribution made to the Dutch subsidiary was allowed, the Court did not allow a contribution to an Italian subsidiary whose losses could no longer be used by operation of Italian law.

The Court also held that a contribution could only be made in respect of categories of losses recognised by Swedish law.

The Swedish Court’s ruling is interesting because the Swedish group contribution rules had previously been thought to be compatible with EC law in the light of the ECJ’s ruling on the Finnish group contribution rules in OY AA. The Swedish Court thought that the principles of the Marks & Spencer decision on UK group relief applied equally to the Swedish system.