Direct tax: Cross-border group consolidation in the EU : Is the criterion of a “wholly owned subsidiary” in Swedish tax legislation regarding cross-border group deductions contrary to ECJ jurisprudence?

Abstract: On July 1 2010 new rules regarding cross-border group deductions came into force in Sweden. The rules are based on a series of judgements which were delivered by the Court of Justice of the European Union and subsequent rulings deriving from the Swedish Supreme Administrative Court. The new set of rules is supposed to make the Swedish group consolidation system in line with EU law in the area of cross-border group consolidations. The new rules allow a resident parent to deduct the losses stemming from its non-resident subsidiary but only if the subsidiary has exhausted all the possibilities to take those losses into account in its own state of origin and the losses cannot be utilized in the future by the subsidiary or a third party. Furthermore, the non-resident subsidiary needs to be liquidated for the parent to be able to show that the possibilities have been exhausted. However, before even considering whether the subsidiary has exhausted the losses there is one criterion that need to be fulfilled; the criterion of a wholly owned subsidiary. The criterion of a wholly owned subsidiary requires a resident parent to directly own its non-resident subsidiary without any intermediate companies and that shareholding must correspond to more than 90 percent. It is the requirement of a direct shareholding which post a concern to whether that criterion can be seen as in compliance with the case-law stemming from The Court of Justice of the European Union and the Swedish Supreme Administrative Court. After revising and analysing the case-law stemming from the Court of Justice and the Swedish Supreme Administrative Court it is the author’s belief that the criterion of a wholly owned subsidiary, due to the requirement of a direct shareholding, is not in conformity with EU law and cannot be justified by the justification grounds put forward by the Swedish government.