Three questions on new views on value transfers in relation to short time working allowance
On Monday 30 November, the Swedish Agency for Economic and Regional Growth (the Agency) issued a press release clarifying the Agency's views on value transfers in relation to short time working allowance. The clarification indicates harmonisation of the application of the rules with the new rules on short time working allowance in certain cases proposed to enter into force on 15 February 2021. The proposal for new legal rules, in turn, indicates harmonisation with the rules on value transfers already in force for conversion aid. Deloitte Legal answers three questions about the new views on value transfers in relation to short time working allowance.*
What do the proposed new legislation imply?
The proposal for new legislation on short time working allowance in certain cases (Fi2020/04742) implies that short time working allowance will be available from 1 December 2020 to 30 June 2021. The memorandum of the proposal also contains other support-related proposals, such as additional measures aimed at strengthening the control of the support. In the case of value transfers, it is proposed that the possibility of distribution of profits and other value transfers in relation to short time working allowance will be specifically regulated by law. According to the proposal, an employer shall not be eligible if, during the support period, the two months immediately preceding the support period and six months immediately after the support period, the employer executes a decision on the distribution of profits or such a decision is taken by the shareholders meeting, the board of directors or the corresponding body during the same period. The same applies to redress, acquisition of own shares or reduction of the share capital or reserve fund for repayment to the shareholders. In practice, this means that if a company is granted support for six months from January to June 2021, dividends can be distributed no earlier than January 2022.
As in relation to conversion aid, the parent company of the company receiving the short time working allowance will also be subject to the restrictions on value transfers. The definition of the term group and the term parent company is the same as in the conversion aid framework, and thus also includes foreign groups and parent companies. In the past, entitlement to short time working allowance has been determined on the basis of the circumstances of the employer applying for the support. As such, the fact that other employers (companies) in the same group have made value transfers has not prevented the applying employer from being granted the support. Furthermore, it is proposed that the formless value transfers referred to in Chapter 17 section 1, part 1 point 4 of the Swedish Companies Act can be implemented also by companies that receive the support. This means that a company can make group contributions at the same time as it receives support. However, it is important to note that according to the current application of the rules on short time working allowance, it is considered disqualifying to make value transfer-rated group contributions in financial statements that occur after 16 March 2020.
What is the implication of the Agency’s application of the current rules until the new legal rules come into force?
The Agency explains in its press release that until the proposed legislative amendment enters into force, dividends and other value transfers made during the company's support period, during the two months immediately preceding the support period and during the six months immediately following the support period, will be considered. Value transfers made before 16 March 2020 are not considered. Group contributions are considered in financial statements that occur during the company's support period, during the two months immediately preceding the support period and during the six months immediately following the support period. Group contributions in financial statements that occur before March 16, 2020 are not considered. In practice, this should mean that it is possible for companies that received short time working allowance during April and May (but not later) to make group contributions as of 31 December 2020 without risking repayment obligations.
In relation to group contributions in particular, it is worth paying particular attention to the part of the Agency's statement which states that group contributions "which are not to be regarded as a value transfer" do not constitute an obstacle to the granting of short time working allowance.
Which group contributions does the Agency not consider to be value transfers?
The Agency has stated that if the group company making a group contribution to another group company, receives an opposite contribution that neutralizes the value transfer in connection with the group contribution, the group contribution is not to be considered as a value transfer. In order to be such an opposite contribution, the transfer shall correspond to the net, i.e. the group contribution reduced by corporation tax attributable to the group contribution. We also assess that group contributions made by a parent company of a subsidiary and where the parent company balances the contribution with a corresponding increase in the accounting item "shares in subsidiaries", should be regarded as such a group contribution which does not constitute a transfer of value.
Deloitte assists in reviewing the possibilities for making group contributions and whether or not group contributions made or planned constitute value transfers.
*The information shall be considered neither advisory nor exhaustive. For advice in individual cases please contact us via the contact details below.