On August 30, 2018, the Swedish government sent draft Bill 2017/18: 296, which includes proposals to Sweden’s controlled foreign company (CFC) rules, to the Riksdag. On June 7, 2018, Sweden’s Ministry of Finance (MOF) announced that it sent a draft bill to the Council on Legislation (Lagrådet) to align Sweden’s CFC rules with EU Directive 2016/1164 (the “Directive”). See BEPS Action 3. The Bill proposes adjustments to current CFC rules located in Chapter 39a of the Income Tax Act (No. 1229 of 1999).
Income will not be subject to the CFC rules if the foreign legal entity is tax resident and liable to income tax in a jurisdiction included on a “white list” issued by the Swedish government, provided the income has not been specifically excluded. The Bill proposes changes to the white list, including the exclusion of Malta. The Bill also proposes changes to comply with the Directive’s rules on eliminating double taxation of joint ventures in CFCs.
The Directive applies to all taxpayers that are subject to corporate tax in one or more EU member states, including permanent establishments (PEs) in at least one member state of entities that are tax resident in a third country. Current Swedish CFC rules apply to both natural and legal persons. The new provisions are proposed to enter into force on January 1, 2019.
Under Sweden’s CFC regime, a Swedish resident company or individual, or any non-resident with a PE in Sweden, that holds an interest in certain foreign legal entities, is subject to immediate taxation on its proportionate share of the foreign legal entity’s profits if the foreign entity is not taxed, or is subject to a tax rate lower than 12.1% (i.e., 55% of the Swedish corporate tax rate of 22%).
To trigger the CFC regime, the Swedish shareholder must control, directly or indirectly, at the end of the income year, at least 25% of the capital or voting rights in the foreign legal entity, either alone or together with persons who have a community of interest with the shareholder.
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