X. Swedish legislation exempting capital gains and excluding deduction of capital losses not in breach of freedom of establishment. Court of Justice

On 10 June 2015, the Court of Justice of the European Union (‘CJ’) delivered its judgment in X AB v. Skatteverket (C-686/13). The CJ held the non-deductibility for Swedish corporate tax purposes of realised foreign exchange losses on shareholdings eligible for relief under the Swedish participation exemption regime compatible with the fundamental freedoms. The case concerned a Swedish company that held a 45% shareholding in a UK subsidiary company whose shares were issued in US dollars. Due to a devaluation of the US dollar relative to the Swedish krona, the Swedish shareholder company would be confronted with a foreign exchange loss upon a disposal of its UK shareholding. Such a loss, however, would not be tax-deductible under the applicable Swedish tax rules. The CJ held such a treatment not to infringe the freedom of establishment, amongst others, because the non-deductibility would have been in place irrespective of whether the shareholding investment involved had been made in a Swedish company or in a company in another EU Member State.