The Supreme Administrative Court of Sweden (HFD) has recently issued a ruling of particular relevance to those assisting companies with business development and other strategic consultancy services. The Court clarified that consultancy expenses aimed at streamlining and improving a company’s profitability in anticipation of a sale are deductible within that company’s business activities – even if the services were commissioned by the owner and thereby also directly benefited it.
In the case at hand, the owner of a subsidiary had engaged consultants to improve the subsidiary’s operations and profitability prior to a sale. The Swedish Tax Agency denied the subsidiary’s deduction claims, arguing that the consultancy fee was not an operational expense for the company but rather a cost borne by the owner, as the aim was to maximise the group’s selling price.
HFD took a different view. The Court first reaffirmed some established principles: the phrase “expenses for acquiring and maintaining income” covers not only costs directly linked to revenues – such as those for goods and services purchased to generate income – but also expenses incurred to reduce costs within the business (cf. RÅ 1986 ref. 128). Thus, it is sufficient for deductibility that the expense relates to the business. In the case of a limited liability company (a swedish aktiebolag), there is also a strong presumption that its expenses meet the requirements for deduction (cf. RÅ 2000 ref. 31).
On this basis, HFD found that the services in question concerned the subsidiary’s operations. The fact that the owners benefited financially from the increased profitability of the subsidiary was irrelevant, as it is inherent that a company’s profitability – or lack thereof – is reflected in the value of its shares. Accordingly, the consultancy fees constituted business expenses for the subsidiary, and deductions were allowed.
The ruling highlights the importance of clearly defining the purpose and scope of the engagement together with the client. By carefully documenting how services contribute to operational improvement – and not merely to ownership-level transaction goals – you significantly strengthen your client’s ability to secure deduction at the appropriate company level within the group.
