Swedish Agency for Economic and Regional Growth released updated guidance on eligibility to short-time work allowance programme for companies tax consolidating by exchanging group contributions. The much awaited clarification sets the record straight by stating that companies which have exchanged group contributions for financial years ending before 16 March 2020 will not be disqualified from the short-time work allowance programme for 2020.
- Short-time work allowance programme is financial assistance from the government was established as part of COVID-19 relief.
- A short-time work allowance is financial support whereby the employer’s costs for personnel can be reduced by one-half at the same time as the employee receiving 90 percent of his or her regular salary/wages.
- The programme is available to companies faced with temporary financial challenges.
- Exchanging group contributions and distributing dividends during the period 16 March - 31 December 2020 disqualifies companies from eligibility to the programme.
- Companies with financial year end after 16 March 2020 should consider that exchanging group contributions will affect their possibility of receiving financial assistance under the short-time allowance programme.
The financial support can cover the period starting from 16 March 2020 for a maximum of 6 months with a possibility for extension for additional 3 months. It will be possible to submit an application for financial support until the end of 2020.
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Swedish Agency for Economic and Regional Growth further clarifies group contributions are deemed executed per last accounting day of the financial year, compared to dividend distributions which are deemed executed per payment day. Dividends paid out before 16 March 2020 are not likely to affect a company's eligibility to short-time work allowance programme.
In a prior statement the Swedish Agency for Economic and Regional Growth has deemed that disbursement of dividends and group distributions are not compatible with short-time work allowance programme, since companies applying for financial support have to prove that they are facing a difficult financial situation. Dividends and group contributions executed before 16 March 2020 do not affect the companies eligibility, hence it was important to clarify when Swedish Agency for Economic and Regional Growth considers dividends and group contributions to be executed. Group contributions are normally executed as a year-end transfer of untaxed reserves for accounting purposes, but sometimes also involve cash payments between group companies. Therefore, if group contributions would have been assessed under the same principle as dividends, i.e. execution per date of payment, companies choosing year-end transfer of untaxed reserves would have been more likely to be eligible for short-time work allowance programme than companies with cash payments as group contributions.
Now it is clear that group contributions are deemed executed per last accounting day of the financial year, while dividend distributions are deemed executed per payment date.
The clarification Swedish Agency for Economic and Regional Growth is in consensus with application of rules on restructuring aid programme, also established as part of the COVID-19 relief. Earlier in June, the Swedish government announced that group grants will not disqualify companies from receiving restructuring aid.
The COVID-19 crises measures should be easy to understand and apply in order to allow the companies in need of financial aid to access the information and determine whether they are eligible for the aid. Baker McKenzie welcomes clarifications on the interpretation of the rules from the authorities and the government and hopes for further clarifications on application of rules on crisis measures in relation to other types of value transfer, for example shareholder contributions and transfer of assets at tax base value.