Background
Stena Line Scandinavia AB was contemplating the acquisition of a foreign company and sought an advance tax ruling (förhandsbesked) from the Tax Law Council (Skatterättsnämnden) on the deductibility of certain financing costs. Rather than taking a conventional bank loan, the company was considering entering into a flexible revolving credit facility under which a bank would commit to making a specified sum available for drawdown on demand over a five-year term. Stena Line would pay market-rate interest only on the amounts actually borrowed, but would separately pay a commitment fee (commitment fee) calculated on the unused portion of the facility at any given time. If the entire facility were drawn down, no commitment fee would accrue; the fee therefore functions as compensation to the bank for keeping capital in reserve.
Under Chapter 24, Section 2(1) of the Swedish Income Tax Act (inkomstskattelagen 1999:1229), “interest expenses” — which are subject to statutory deduction limitations — are defined to include not only interest proper but also “other expenses for credit” (andra utgifter för kredit) and expenses comparable to interest. That definition was shaped by EU Directive 2016/1164 (the Anti-Tax Avoidance Directive) and the OECD BEPS Action 4 recommendations, which broadly capture “costs that are economically equivalent to interest and costs incurred in connection with the raising of finance.”
Stena Line asked the Tax Law Council three variants of the same question (1a–c): does the commitment fee constitute an “other expense for credit” when none of the facility is drawn, when part is drawn on one occasion, and when parts are drawn at different times? It also sought rulings on whether legal advisory costs related to reviewing or negotiating loan agreements (2a), preparing corporate-law documents for the financing (2b), and advising on lender-required security arrangements and any resulting restructuring (2c) fall within the same category. The Tax Law Council answered all questions in the negative. The Swedish Tax Agency (Skatteverket) appealed, arguing the commitment fee and at least some advisory costs should be treated as expenses for credit.
The Court’s Holding
The Supreme Administrative Court reversed the Tax Law Council’s advance ruling on questions 1a–c and declared that the commitment fee constitutes an “expense for credit” within the meaning of Chapter 24, Section 2(1) of the Income Tax Act, regardless of whether any part of the credit facility is actually utilised. The Court affirmed the advance ruling in all other respects, confirming that the legal advisory costs do not qualify as expenses for credit.
The Court reasoned that a credit facility of this kind must be viewed as a single integrated financing arrangement. The company compensates the bank in two complementary ways: interest on drawn amounts and a commitment fee on undrawn amounts. The commitment fee is the bank’s price for standing ready to lend — it is the cost of the financing solution itself, not a mere service charge. Accordingly, both components are expenses for credit within the statutory definition, and the fact that the fee is calculated on the unused headroom rather than on actually borrowed capital does not alter its character. This reasoning applies equally where the credit line goes entirely unused (question 1a): even in that scenario the fee compensates the bank for the financing commitment and therefore remains an expense for credit.
On the advisory costs, the Court agreed with the Tax Law Council that, although those costs arise in connection with a potential loan, they lack the direct nexus to the credit itself required to bring them within the definition of interest expenses. They are costs of the acquisition transaction and its surrounding corporate and legal structuring, not costs of obtaining the credit as such.
Key Takeaways
- A commitment fee on the undrawn portion of a revolving credit facility is an “other expense for credit” under Chapter 24, Section 2(1) of the Swedish Income Tax Act and therefore falls within the statutory interest-deduction limitation rules, irrespective of whether the facility is ever utilised.
- Swedish courts will look to the economic substance and overall structure of a financing arrangement — not merely to whether capital has actually been borrowed — when classifying financing charges for tax purposes.
- Legal advisory costs incurred in connection with a loan transaction (reviewing agreements, preparing corporate documents, advising on security) do not constitute “other expenses for credit” and are not caught by the interest-deduction limitation rules; they retain their character as general business expenses.
- The ruling aligns Swedish domestic law with the broad definition of “borrowing costs” in the EU Anti-Tax Avoidance Directive (2016/1164) and OECD BEPS Action 4, both of which informed the Swedish statutory definition.
Why It Matters
The decision resolves a previously unsettled question in Swedish corporate tax practice: commitment fees on revolving and standby credit facilities are now squarely within the scope of the interest-deduction limitation regime in Chapter 24 of the Income Tax Act. For companies subject to the earnings-stripping rules or other restrictions on interest deductibility, this means commitment fees must be included when calculating whether deduction caps are exceeded — a potentially significant compliance and planning consideration for groups that rely on flexible credit structures to manage acquisition or working-capital financing.
The ruling also draws a clear dividing line between the cost of the credit itself (caught by the rules) and the transaction costs surrounding a deal or its financing (not caught). Businesses and their advisers can take confidence that legal and structuring fees connected to a financing transaction fall outside the interest-limitation framework, even if they were incurred because a lender imposed particular conditions. That distinction will be of immediate practical relevance to any Swedish corporate taxpayer arranging acquisition finance.