In December 2024, the Swedish Tax Agency (Skatteverket) lost a case in the Administrative Court of Appeal in Gothenburg regarding a corporation's right to deduct expenses for sponsorship. Given the ruling, there may now be room for companies that have previously been denied such deductions to successfully claim them.
When Are Sponsorship Expenses Deductible Under Swedish Tax Law?
As a general rule, deductions are allowed for expenses incurred to acquire and maintain income, as stated in Chapter 16, Section 1 of the Income Tax Act (Inkomstskattelagen). However, another provision in the Income Tax Act stipulates that gifts are not deductible for income tax purposes.
Over recent decades, the right of a company to deduct expenses has been addressed in several cases by the Supreme Administrative Court (Högsta Förvaltningsdomstolen, HFD). Based on this case law, it can be said that sponsorship expenses must have resulted in increased sales of the company’s products or services if no direct compensation was received by the company. In other words, it must be demonstrated that the expenses actually contributed to an increase in the company's income if no direct compensation was provided.
What Were the Circumstances in the Court Case?
In the case, a large Gothenburg-based company had sought deductions for sponsorships provided to Frölunda HC (a hockey team) and the Gothenburg Opera. The Swedish Tax Agency had denied the deductions, arguing that the company had not received compensation from the sponsorship recipients equivalent to the value of the sponsorships.
The company did not appear to argue based on the possibility outlined in Swedish case law to demonstrate that the expenses had increased the company’s sales. At the same time, there can be significant practical challenges in proving that sales increased due to the expense.
As compensation, the company had received exposure through Frölunda HC in the form of sponsor branding. The company had also received tickets to the hockey team's games and opportunities for corporate hospitality during the games. Similar benefits were received from the Gothenburg Opera.
What Was the Court’s Decision?
The court rejected the Swedish Tax Agency’s argument that the company must prove who used the hockey tickets and when they were used. In doing so, the court found that the agency had tried to impose requirements on the company that were not supported by current legislation.
Furthermore, the court ruled that the agency’s valuation of the benefits received was incorrect. Instead, the court found that the total value of the benefits was reasonably proportional to the financial contribution made to the hockey club, thereby granting the company the right to the deduction.
Regarding the sponsorship of the Gothenburg Opera, the court applied the same reasoning and declared that the company was entitled to the deduction.
Our Comments on the Ruling
The Administrative Court of Appeal clarified in its ruling that the Swedish Tax Agency had imposed requirements not supported by law, specifically by obligating the company to demonstrate who used the tickets and when.
The court also made clear that the agency’s valuation of the benefits received was incorrect.
Unfortunately, both these issues are fairly common. In particular, the latter—where the Swedish Tax Agency itself assesses the value of a benefit—occurs relatively frequently. In this context, it is worth noting that the agency often lacks solid support for its valuations. It is not uncommon for the agency to estimate the value of a benefit in a highly subjective manner—without reference to studies of market value for a particular benefit. For example, we often see this in cases where the agency estimates the value of a housing or boat benefit.
This ruling demonstrates that it is possible to succeed in challenging the Swedish Tax Agency’s decisions on appeal. Has your company been denied deductions for sponsorship expenses? Do not hesitate to contact us for assistance.
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