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Sweden's Supreme Administrative Court rejects value depreciation deduction for Sandvik

Sweden's Supreme Administrative Court today opposed the decisions made earlier by lower courts and rejected tax deductions related to the leasing of aircraft via Swedish limited partnership companies to international aircraft companies.

In Sandvik's case, the Supreme Administrative Court's ruling means that the company has to pay an extra SEK 110 M in tax.

Jointly with Skanska and Stora, Sandvik entered into two Swedish limited partnership companies in 1988, which acquired aircraft from Boeing. The aircraft were then leased to two international aircraft companies, based in the Netherlands and Hong Kong, respectively. Sweden's National Tax Board has lodged proceedings against the partners in the limited partnership companies since 1990, claiming that these companies do not have the right to make deductions for depreciation in the value of the aircraft. The Supreme Administrative Court has now rejected the value depreciation deduction with the explanation that the companies, in weighing various factors, were not accepted as the owners of the aircraft.

The immediate effect of the Supreme Administrative Court's rulings in these two cases is that Sandvik must pay taxes earlier than what would otherwise have been the case. The rulings, which pertain to taxation in 1989 and 1990, result in an increase in taxes for those years by a total of SEK 269 M. The revised taxation for 1989 and 1990 also means that taxation in later years will also change. The additional net cost for Sandvik has been estimated at about SEK 110 M in total for the years 1988-1997 and will be charged against Group earnings for 1998.

Sandvik is also an owner in another limited partnership that had similar operations, which is also the object of tax proceedings, in this case only with regard to taxation in 1990. Since the conditions are not entirely identical with the limited partnerships which were the object of examination, the result of this process cannot be determined today. The additional net cost for Sandvik is about SEK 100 M, if this depreciation deduction should also be disapproved.

Even if Sandvik had not allocated reserves for these addition costs of SEK 110 - 210 M, they are included in an estimated possible additional tax charges of SEK 500 M as stated in Sandvik's 1997 Annual Report (Note 14).

Sandviken, 24 June 1998

Sandvik AB; (publ)

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