Post by Sapphire Capital on Oct 29, 2008 20:36:50 GMT 4
Sweden: Swedish Ministry of Finance issues new proposal on certain intra-group transactions
On June 23 2008 the Swedish tax agency submitted a proposal to the Swedish government with suggestions for limiting interest deductions on intercompany loans. The proposal was submitted to relevant parties for comment and on August 25 2008 the Swedish Ministry of Finance presented a revised proposal taking into consideration comments received.
The Swedish Tax Agency's proposal aimed to identify several intra-group transactions in which interest income was accounted for in tax havens and corresponding interest deductions had been allowed in Sweden. The tax agency thought this led to a tax advantage for the Swedish company and the group.
The tax agency has previously attempted to challenge these transactions by using the anti-avoidance act. However, the Swedish Supreme Administrative Court has ruled that the anti-avoidance act is not applicable in these situations.
According to the new proposal, a Swedish company should not be allowed to deduct interest expense on loans from an affiliated company, or in special circumstances a third party, in the following situations:
Interest deductions on loans for intra-group acquisitions of shares and other share-based instruments.
The above mentioned restriction is also applicable on back-to-back loans to an external party, unless the payable and receivable are mainly motivated by business reasons.
The restriction in 1 above is also applicable if an interim loan from a third party is being replaced by an intra-group loan.
As regards points 1 and 3 above, the interest expense would be deductible if one of the following exemptions is applicable:
The interest income related to the loan is taxable at a rate of 10% in the country where the beneficial owner of the interest is located had the interest income been the only income recognised by the beneficial owner.
The intra-group acquisition and the debt related to the interest expense are motivated mainly by business reasons. According to the proposal, business reasons include, but are not limited to; restructurings before the disposal of a business unit to a third party, restructurings with the aim of creating a more efficient business structure and pre- and post-merger reorganisations.
The Swedish Ministry of Finance recommends that the proposal be introduced on January 1 2009 and be applicable to interest expense incurred after December 31 2008. It is also suggested that the limitations should be applicable to future expenses on loans already in place.
The proposal has been submitted to relevant parties for comment. The comments should have been submitted by relevant parties to the Swedish Ministry of Finance by September 1 2008. A bill to parliament is expected to be submitted during this autumn thus the new rules are likely to become applicable as from January 1 2009.
Sweden reduces corporate income tax rate
On September 22 2008 the Swedish government presented the 2009 budget bill.
One piece of news in the bill is that the corporate income tax rate is to be reduced from 28 % to 26.3 % as of January 1 2009. It is stated that the expected increased governmental revenue due to the proposed limitation on interest deductions on loans on certain intra-group transactions will help finance the reduction of the corporate income tax rate.
The government bill also proposes that it should be possible to immediately deduct costs for equipment of acquisition value less than SEK 21,400 ($3,200). The new rules will be applicable for financial years beginning after December 31 2008.
Source: ITR / Ernst & Young
Carl Pihlgren (carl.pihlgren@ey.com), Swedish Tax Desk, New York and Sara Bolmstrand (sara.bolmstrand@se.ey.com), Stockholm, +1 212 773 1069
On June 23 2008 the Swedish tax agency submitted a proposal to the Swedish government with suggestions for limiting interest deductions on intercompany loans. The proposal was submitted to relevant parties for comment and on August 25 2008 the Swedish Ministry of Finance presented a revised proposal taking into consideration comments received.
The Swedish Tax Agency's proposal aimed to identify several intra-group transactions in which interest income was accounted for in tax havens and corresponding interest deductions had been allowed in Sweden. The tax agency thought this led to a tax advantage for the Swedish company and the group.
The tax agency has previously attempted to challenge these transactions by using the anti-avoidance act. However, the Swedish Supreme Administrative Court has ruled that the anti-avoidance act is not applicable in these situations.
According to the new proposal, a Swedish company should not be allowed to deduct interest expense on loans from an affiliated company, or in special circumstances a third party, in the following situations:
Interest deductions on loans for intra-group acquisitions of shares and other share-based instruments.
The above mentioned restriction is also applicable on back-to-back loans to an external party, unless the payable and receivable are mainly motivated by business reasons.
The restriction in 1 above is also applicable if an interim loan from a third party is being replaced by an intra-group loan.
As regards points 1 and 3 above, the interest expense would be deductible if one of the following exemptions is applicable:
The interest income related to the loan is taxable at a rate of 10% in the country where the beneficial owner of the interest is located had the interest income been the only income recognised by the beneficial owner.
The intra-group acquisition and the debt related to the interest expense are motivated mainly by business reasons. According to the proposal, business reasons include, but are not limited to; restructurings before the disposal of a business unit to a third party, restructurings with the aim of creating a more efficient business structure and pre- and post-merger reorganisations.
The Swedish Ministry of Finance recommends that the proposal be introduced on January 1 2009 and be applicable to interest expense incurred after December 31 2008. It is also suggested that the limitations should be applicable to future expenses on loans already in place.
The proposal has been submitted to relevant parties for comment. The comments should have been submitted by relevant parties to the Swedish Ministry of Finance by September 1 2008. A bill to parliament is expected to be submitted during this autumn thus the new rules are likely to become applicable as from January 1 2009.
Sweden reduces corporate income tax rate
On September 22 2008 the Swedish government presented the 2009 budget bill.
One piece of news in the bill is that the corporate income tax rate is to be reduced from 28 % to 26.3 % as of January 1 2009. It is stated that the expected increased governmental revenue due to the proposed limitation on interest deductions on loans on certain intra-group transactions will help finance the reduction of the corporate income tax rate.
The government bill also proposes that it should be possible to immediately deduct costs for equipment of acquisition value less than SEK 21,400 ($3,200). The new rules will be applicable for financial years beginning after December 31 2008.
Source: ITR / Ernst & Young
Carl Pihlgren (carl.pihlgren@ey.com), Swedish Tax Desk, New York and Sara Bolmstrand (sara.bolmstrand@se.ey.com), Stockholm, +1 212 773 1069