Opinion Statement ECJ-TF 1/2021 on the ECJ Decision of 20 January 2021 in Lexel AB (Case C-484/19) Concerning the Application of the Swedish Interest Deductibility Rules
European Taxation, vol. 61, n. 6 (2021) [ISSN: 2352-9199]
7 Pages Posted: 11 Sep 2021 Last revised: 15 Sep 2021
Date Written: June 30, 2021
This is an Opinion Statement prepared by the CFE ECJ Task Force1 on Case C-484/19, Lexel AB, in which the Court of Justice of the EU (First Chamber) (ECJ) delivered its judgment on 20 January 2021. The ECJ rendered its judgment without an opinion of an Advocate General. The case concerned the Swedish interest deductibility rules. In Sweden, interest payments are generally deductible. As an exception to this rule, interest payments made to an associated company are generally not deductible. Interest may be deductible, however, if the underlying debt is justified on commercial grounds. Interest payments between two Swedish associated companies are always deductible due to the intra-group financial transfer system. The ECJ had to decide whether the different treatment of interest payments made to other EU companies and interest payments made to Swedish companies can be justified by overriding reasons in the general interest. The ECJ held that the Swedish rules were not compatible with the freedom of establishment. It held that the different treatment could neither be justified by the need to fight against tax evasion and tax avoidance nor by the need to maintain a balanced allocation of the power to impose taxes between the Member States. In addition, the Court also stated that even if the transaction in question represents a purely artificial arrangement, the principle of proportionality requires that interest payments which are in line with the arm’s length principle must be deductible. The judgment is of particular interest as many EU Member States have introduced similar interest deductibility rules, and also for the proposed Source State rules in the Pillar 2 Blueprint of the OECD.
Keywords: Taxation, Tax law, European taxation
JEL Classification: K33, K34, F13, E62, D78, E62, F02, F23, F42, H20, H22, H23, H25, H26, H87, O19, O23, O24
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