Swedish Supreme Court Ruling on Taxation of Payments from a Private Company with Manipulated Invoices

In March 2025, the Supreme Administrative Court of Sweden (Högsta Förvaltningsdomstolen, HFD) issued a new tax ruling on whether the owner of a closely held company can be subject to deemed income taxation when the company has made payments that either lack supporting documentation in the accounting records or have supporting documents in the form of manipulated invoices.

Can a Swedish closely held company owner be taxed when supporting documentation is lacking?

According to a 1980 ruling from the Swedish Supreme Administrative Court ("Högsta Förvaltningsdomstolen"), there is a presumption that an owner of a closely held company personally receives any funds that the company has obtained but not recorded in its accounts. Consequently, the presumtion is that the owner should be taxed personally on such non recorded income.

This reasoning is based on the assumption that the majority shareholder has control over the company and, therefore, over funds that have been received but not accounted for. As a result, the owner is deemed to have personally received such income, which is subject to taxation.

However, the same ruling also established that this presumption can be rebutted. Specifically, no taxation should occur if it can be demonstrated that the unrecorded funds were actually used to pay the company’s expenses. The same applies if the funds were withdrawn from the company without the majority owner’s knowledge. In such cases, the majority owner should not be taxed.

How did the circumstances look in this court case?

In this case, the issue was not unreported income in the company. Instead, the company had made payments that were recorded in the books, but some lacked supporting invoices. For other payments, invoices existed but had been manipulated to make it appear as though the expenses belonged to the company when they did not.

The payments made by the company were actually on behalf of another business. More specifically, an external company had made advance payments to the company. However, due to liquidity problems, the two companies agreed that these advances would be repaid by having the recipient company cover the other company’s expenses.

The Swedish Tax Agency argued that, based on the 1980 ruling, the majority owner of the company should be taxed as if they had personally received the payments through deemed income taxation.

How did the Swedish Supreme Administrative Court reason in its ruling?

The court began by referring to the 1980 ruling, emphasizing that it establishes a presumption that can be rebutted by the taxpayer. In this context, the court focused on the fact that the payments had been made to an external recipient, meaning the company’s majority owner did not have control over the funds after they were paid out. The court also found the explanation regarding the repayment of advance payments to be reasonable. It was therefore clear that the company’s majority owner had not had control over the disbursed funds.

As a result, the court rejected the Swedish Tax Agency’s argument, ruling in favor of the company owner.

What does the ruling mean for Swedish company owners?

This case is significant because it confirms that tax presumptions can be overturned if the taxpayer provides sufficient evidence. This principle is important, as taxation should not apply when a taxpayer has not actually received or controlled the income in question.