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 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 that are in line with the arm’s length principle must be deductible.
The decision is of particular interest as many EU Member States have introduced similar interest deductibility rules. Further, it is of interest in respect of the proposed source state rules under the OECD’s Pillar Two Blueprint. [2.]
|Publication status||Published - 2021|