The Swedish Tax Agency (‘‘STA”) has issued new guidance on financial guarantees with reference to the published Chapter X by OECD about financial transactions, replacing previous guidance on the same topic issued in 2007.
In earlier Swedish case law (12 cases primarily from 1998 – 2004), no compensation had to be paid to Swedish companies providing financial guarantees to subsidiaries and group companies, as the provision of financial guarantees was not considered a standard part of the business of the Swedish companies, and because the Swedish companies did not have any costs relating to the issued guarantee. In one scenario, the Swedish company’s taxable result was adjusted on the basis of the Swedish arm’s-length rule, because the Swedish company had itself incurred costs in relation to the provided guarantee but had not charged its subsidiary for the provided guarantee.
The STA acknowledges that the Swedish case law was issued during a time when guidance regarding intra-group financing was limited and that it is obsolete as of today. Furthermore, the STA states that guidance regarding intra-group financing should be found in Chapter X. In addition to previous guidance, which was limited to guarantees paid to shareholders and did not affect how other types of financial guarantees should be treated, the STA confirms that the arm’s-length principle should be applied in all situations, including situations of tax deductibility where foreign companies have provided the Swedish company with a guarantee.
We welcome the STA’s guidance as it clarifies an issue where there has been uncertainty for a longer period than necessary. Swedish taxpayers - both recipients and providers of guarantees - can now rely on the OECD approach as suggested in Chapter X when assessing the arm’s-length value of a guarantee provision.
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