Shares in a Jersey Private Ltd covered by the Swedish participation exemption

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Published 11 April 2022
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By Maria Ström & Victor Elovsson

The Swedish Supreme Administrative Court established in HFD 2022 not. 3 that a Jersey Private Ltd is comparable to a Swedish limited liability company with respect to the application of the rules on shares held for business purposes (Sw. näringsbetingade andelar) and the Swedish participation exemption.

In the ruling from the Supreme Administrative Court (“HFD”), a Swedish company wanted to know whether the shares in a company incorporated in Jersey, a Jersey Private Ltd, would be considered held for business purposes within the meaning of the participation exemption, following a possible acquisition. According to Swedish rules, the participation exemption is applicable on shares in companies that are held for business purposes. The exemption is applicable on shares in foreign companies if they are comparable to a Swedish limited liability company, with respect to the specific corporate rules and taxation. The taxation is not considered comparable if, e.g., the company is taxable in its resident state, but covered by a general and complete exemption from income tax.

The Jersey Private Ltd in the ruling was considered comparable to a Swedish limited liability company with respect to the specific corporate rules. With respect to taxation, it was explained that a Jersey Private Ltd is fully taxable in Jersey for income related to real estate in Jersey and import and sales of certain fossil fuels, at a rate of 20%. The tax rate on business income from other sources is 0%. However, the company was not covered by a general tax exemption. According to HFD, the Jersey Private Ltd was, therefore, to be considered comparable to a Swedish limited liability company with respect to its taxation.

HFD’s judgement is in line with its prior judgements in similar rulings, but contrary to the Swedish Tax Agency's official statement, in which it is clarified that a foreign company can be comparable to a Swedish limited liability company with respect to taxation, even if the tax rate on certain business income is 0%.