The right to implement independent corporate taxation: group taxation, interest deductions, BEFIT, the global minimum tax, and the legal status of OECD documents

Introduction and background
This research project is two-pronged: it addresses and assesses the right of Member States, in this case, Sweden, to adopt independent corporate income tax rules and examines what, if any, legal status OECD documents regarding the Pillar Two solution have.
Sweden has traditionally not applied withholding tax to foreign interest payments, at the same time allowing full interest deductions without a requirement to link interest payments to business income, or any other requirement, rendering all interest payments deductible. Due to the lack of thin-cap rules, tax base erosion through interest payments became a severe problem in the early 2000s, leading to the adoption of targeted interest limitation rules in 2009, which were subsequently amended in 2013 and yet again in 2019. Essentially, the targeted rules denied interest deductions between affiliated companies if the concerned companies could not prove a genuine business motive.
To properly understand the issues at hand, one must know that Sweden, in addition to Finland and Norway, applies a contribution payment system, which enables members of a group of affiliated companies, meeting certain legal criteria, to contribute funds to affiliated companies, with the right to deduct the same amount. The purpose is to be able to offset any losses within the group of companies, enabling the group to function similarly to a single tax entity. This has been labeled the Nordic contribution model which as shown differs from the continental tax group approach.
Due to an assumption in the preparatory works of the Income Tax Act, namely that if the affiliated companies were in a legal position that would enable them to pay group contributions, it would be assumed that the interest payments were legitimate. This was tried in the Lexel case before the Court of Justice of the EU, where the latter in 2021 found the provisions of Swedish law to amount to an infringement of the right of establishment.
In 2022 a new judgment was delivered, this time by the EFTA Court. In the PRA case, the Court found that the Norwegian contribution rules, which are nearly identical to the Swedish rules, constituted a restriction to the freedom of establishment. Namely, Norway had introduced a general interest deduction rule as the one later adopted in the ATAD by the EU, by which interest payments of up to 30% of a company’s EBITDA could be deducted. However, group contributions could be used to increase the EBITDA, which was possible only in a domestic setting.
In December of 2022, the Directive implementing the OECD Pillar Two solution was adopted by the Council, and Member States are obliged to introduce legislation that comes into effect by 1 January 2024. Pillar Two essentially aims to ensure that larger multinational corporations pay corporate income tax at an effective tax rate of at least 15%. The rules are both extensive and technically difficult and provide, among other things, new targeted interest deduction rules. However, the Directive relies on OECD documents for its implementation, stating the following in the preamble:
(24) In implementing this Directive, Member States should use the OECD Model Rules and the explanations and examples […], as a source of illustration or interpretation in order to ensure consistency in application across Member States to the extent that those sources are consistent with this Directive and Union law.
The legal status of OECE documents is not a novel issue itself, and the topic has been broadly discussed in Sweden. However, this was done regarding the Commentaries to the OECD Model Convention, the Transfer Pricing Guidelines, and even the BEPS Action Plans which led to the adoption of the ATAD. However, this is the first time OECD documents are introduced directly by an EU legal act, warranting a new study of their legal status.
Finally, the European Commission published two proposals for new Directives in the sphere of corporate taxation: the BEFIT project and the Transfer Pricing directive, the latter essentially adopting the OECD Transfer Pricing Guidelines. The effect of these proposals, if adopted, will be discussed, and analyzed as well.

The research questions
This research project aims to answer the following questions:
- Is Swedish legislation on group taxation (the contribution rules) and interest deduction limitations coherent and consistent with Union law?
- What is the legal status of the OECD documents regarding group taxation, interest deduction limitations, and the global minimum tax, especially regarding the principle of legality?

Theory and applied methods
This thesis is based on a legal positivist, and theoretically based concept of law, with the legal order (legal system) as the object of study. This means that law is perceived as a science, and the identification of the sources of law, and the methods of interpretation to be applied, must have a foundation in legal positivist theory.
Although the approach is legal positivist-theoretical, all the research questions will be analyzed from a non-theoretical positivist approach, which is an approach common in Sweden as well. Both approaches have been referred to as "the legal dogmatic method", even if they are not methods in the scientific sense. In addition, the issues are also addressed from a legal-realistic perspective. All this to illustrate that law, and the notion of law, is a man-created phenomenon. Hence, the content of the law, and the notion of law, depends on us and our perception.
The meaning of legal dogmatism, legal dogmatic method, and legal method is discussed in the thesis to clarify that the concept includes both a perception of law, theoretically founded or not and that it expresses a method, or procedure, for how the contents of the law are to be determined. However, to apply a method, it is first necessary to determine the sources of knowledge: what are the sources of law – which according to some perceptions, falls within the legal dogmatic method. A legal positivist approach to the law requires that there exists a rule of recognition for what is a legal norm. This raises the question of whether other than the designated legislators can create law, and whether it is possible to delegate this right to other bodies. However, as the thesis will show, this question is irrelevant to a legal realist, who only considers how a court would rule, and any sources used to solve the case would be considered sources of law.
In summary, to answer the research questions posed, a dogmatic legal method will be applied, based on legal positivist assumptions about law and a legal source doctrine compatible with legal positivism. At the same time, any differences in the answers, arising from the application of other concepts of law, will be presented and discussed.