<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>Member states often try to restrict cross-border debt financing in multinational groups. The pending Swedish case, Lexel AB, C-484/19, is a prime example. The Swedish tax law operates with a vague legal concept of tax abuse that is completely inappropriate to identify tax-abusive financing and disadvantages only foreign groups. This paper analyzes the Swedish rules on interest limitation in affiliated groups (C-484/19), which refers to substantial tax benefits, against the background of the European Union law and the finance theory. In this regard, a breach of European Union law can be found. This also applies to the current Swedish tax law. Moreover, the interest limitation rules are analyzed from the background of the principles of finance theory, particularly the interest coverage ratio (ICR). In this context, a comparative analysis is carried out between the Swedish rules and the Anti-Tax Avoidance Directive (ATAD) provision (Art. 4). Adequate regulations on the limitation of interest should cope with the problem of profit shifting, also preserve the freedom of financing, particularly in multinational groups, and should not contain any difference in treatment between domestic and foreign groups.</p>
</abstract>

Member states often try to restrict cross-border debt financing in multinational groups. The pending Swedish case, Lexel AB, C-484/19, is a prime example. The Swedish tax law operates with a vague legal concept of tax abuse that is completely inappropriate to identify tax-abusive financing and disadvantages only foreign groups. This paper analyzes the Swedish rules on interest limitation in affiliated groups (C-484/19), which refers to substantial tax benefits, against the background of the European Union law and the finance theory. In this regard, a breach of European Union law can be found. This also applies to the current Swedish tax law. Moreover, the interest limitation rules are analyzed from the background of the principles of finance theory, particularly the interest coverage ratio (ICR). In this context, a comparative analysis is carried out between the Swedish rules and the Anti-Tax Avoidance Directive (ATAD) provision (Art. 4). Adequate regulations on the limitation of interest should cope with the problem of profit shifting, also preserve the freedom of financing, particularly in multinational groups, and should not contain any difference in treatment between domestic and foreign groups.

The freedom of cross-border funding in multinational groups and European Union law

Nordic Tax Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Member states often try to restrict cross-border debt financing in multinational groups. The pending Swedish case, Lexel AB, C-484/19, is a prime example. The...

The freedom of cross-border funding in multinational groups and European Union law

Article Category: Article

Published Online: May 18, 2021

Page range: 58 - 70

Received: Jun 22, 2020

Accepted: Nov 06, 2020

DOI: https://doi.org/10.2478/ntaxj-2020-0003

Keywords
European Union law, Freedom of establishment, International tax law, Intra-group financing, Freedom of funding, Tax avoidance, Interest deduction limitation rules, Group taxation

© 2022 Thomas W. Kollruss, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Figure 1

Figure 2

The freedom of cross-border funding in multinational groups and European Union law

Article Category: Article

Published Online: May 18, 2021

Page range: 58 - 70

Received: Jun 22, 2020

Accepted: Nov 06, 2020

DOI: https://doi.org/10.2478/ntaxj-2020-0003

KeywordsEuropean Union law, Freedom of establishment, International tax law, Intra-group financing, Freedom of funding, Tax avoidance, Interest deduction limitation rules, Group taxation

© 2022 Thomas W. Kollruss, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Figure 1

Figure 2

Keywords
European Union law, Freedom of establishment, International tax law, Intra-group financing, Freedom of funding, Tax avoidance, Interest deduction limitation rules, Group taxation