Sweden - Changes to the interest deduction limitation regime proposals 

There are no significant changes contained in the bill, when compared to the proposal presented by the government in June 2012. See TaxNewsFlash-Europe: Sweden - Changes to interest deduction limitation rules move forward

However, in the bill, the exemption referred to as the “10% rule” has been made less stringent, meaning that intra-group interest payments would be deductible in more situations (than when compared to prior proposals).

If the bill is approved, the changes will have an effective date of 1 January 2013.

Summary

Under the bill, the provisions can be summarized as follows:

• The interest deduction limitation regime would be extended to cover all debts to affiliated companies.
• Deductions may still be allowed if the recipient of the interest income is subject to a tax rate of at least 10% (i.e., the “10% rule”), or if the debt relationship is primarily made for business reasons.
• The 10% rule would be extended so that it applies to companies that are subject to the yield tax.
• The 10% rule would not apply if the primary reason (approximately 75% or more) of the debt relationship is to obtain a significant tax advantage—i.e., the exemption from the 10%-rule would be made less stringent by raising the bar to approx. 75% (up from the approximate 50% ceiling as in the previous version of the proposal).
• The “business reasons test” would be applicable only when the recipient of the interest income is located in a country in the EEA or in a country with which Sweden has an income tax treaty for the avoidance of double taxation.
• In assessing whether the “business reasons test” is applicable, consideration would be given as to whether funding could instead have been provided through a capital contribution from the company that holds the claim or from a company that, directly or indirectly, through ownership or otherwise, has a significant influence in the borrowing company.
• The interest limitation for back-to-back external loans would continue to apply only for loans taken out to finance the intra- group acquisitions of shares.
• The scope of the rules are extended by changing “controlling interest” to “significant influence” when assessing if companies are affiliated.

Read a September 2012 report, prepared by the KPMG member firm in Sweden: Changes to the Swedish interest deduction limitation regime—bill now published

For more information contact a tax professional in Sweden:

Göran Ström

+46 (0)8 723 96 05