Background
The Energy Tax Act (LSE) states that an energy tax reduction is available for electricity and fuel used in industrial activities in a manufacturing process. However, the LSE lacks a definition of the concept of industrial activity.
Older legal preparatory work statements provide support that the Swedish Standard Industrial Classification (SNI) codes, which are otherwise used for statistical purposes, could be guiding in the assessment of what is to be considered industrial activity for energy tax purposes. However, there are several rulings from lower courts with exemptions from this general starting point, including regarding the production of seed and various forms of material recycling.
The Tax Agency's position has for a long time been that a company's main activity based on turnover shall be industrial for an energy tax reduction to be applicable. According to the Tax Agency's opinion, which is based on older legal preparatory work statements, a prerequisite for an energy tax reduction is that the company's turnover attributable to the industrial activity amounts to at least 50% of the company's total turnover.
Many companies that conduct industrial activities and other non-industrial activities have therefore been denied an energy tax reduction by the Tax Agency. The Tax Agency's position has been supported by the Administrative Court and the Administrative Court of Appeal in several rulings.
First case
A company that applied for an advance tax ruling at the Council for Advance Tax Rulings carried out an industrial activity that involved the processing of grain in facilities that required large investments in machinery consisting of, among other things, scales, dryers, aspirators, and crushers. The question for the council was whether the activity should be assessed as industrial according to the LSE and thus be subject to an energy tax reduction for the consumption of electricity and fuel in the manufacturing process.
The Tax Agency considered the described activity as industrial, even though the SNI code for the activity was not industrial in this context. Furthermore, the Tax Agency stated that the company's main activity shall be industrial for an energy tax reduction to be applied, but that it could not be ruled out that what constitutes the company's main activity can be assessed based on energy consumption.
The Council for Advance Tax Rulings found that there is no distinct support in the law for the position that it is a prerequisite for an energy tax reduction that the company's main activity shall be industrial. According to the council's assessment, there is also a lack of support in the preparatory work for the legislation for the Tax Agency's position that the main activity shall be industrial for an energy tax reduction to be applicable. The applicant company's activity shall therefore, according to the council, be considered industrial according to the LSE and an energy tax reduction shall apply for electricity and fuel consumed in the company's manufacturing process.
Second case
Another company also applied for an advance tax ruling regarding the question of whether the company's activity, after a restructuring, should be considered industrial according to the LSE. The council assessed that the applicant company's activities should be considered industrial according to the LSE and that an energy tax reduction should apply, even though the company's main activity in terms of turnover was not industrial.
The Tax Agency appealed the advance tax rulings to the Supreme Administrative Court.
The Supreme Administrative Court’s conclusion
The Supreme Administrative Court upheld the rulings from the Council for Advance Tax Rulings and thereby rejected the position of the Tax Agency.
According to the Supreme Administrative Court, the older legal preparatory work statements on which the Tax Agency based its opinion shall be considered irrelevant as they are attributable to the assessment of what is an industrial activity according to previous rules on energy tax reductions.
KPMG's comment
The rulings are very positive for companies that carry out industrial activities, but where the industrial activities are not the company's main activity in terms of turnover.
Companies that have been denied energy tax reductions for electricity and fuel consumed in the manufacturing process in industrial activities now have, with the support of the rulings, very good opportunities to have tax reductions going forward and retroactively.
