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Sweden’s Tax Committee Endorses Draft Interest Limitation Rules

Jessica Silbering-Meyer  

Jessica Silbering-Meyer  

On June 14, 2018, Sweden’s Parliamentary Tax Committee released a report (2017/18: SkU25), endorsing the government’s proposal in Bill No. 2017/18:245 to introduce a general interest deduction limitation in the corporate sector to 30% of earnings before interest, tax, depreciation and amortization (EBITDA). The proposal includes a simplification rule, where a negative net interest income may be deducted up to SEK 5 million. The 30% of EBITDA interest limitation proposal aligns with Article 4 of the EU Directive 2016/1164 and BEPS Action 4.

According to the Committee Report, there are additional proposals affecting group companies regarding deductions for interest expenses in certain cross-border situations, such as hybrid mismatches. A company may not deduct interest expenses if a group company in another jurisdiction can deduct for the same interest expenses, which are not denied in the other state.

EU Directive 2016/1164 contains rules on hybrid mismatches applicable to intra-EU transactions (Article 9). Through an amending directive (EU Directive 2017/952), the scope of the Directive has been extended to include hybrid mismatches with third countries. The Action 4 final report recommends a fixed ratio rule, which limits an entity’s net deductions for interest, and payments economically equivalent to interest, to a percentage of its EBITDA. The recommended approach includes possible ratios of between 10% and 30%.

On March 21, 2018, the Ministry of Finance (MOF) issued draft legislation to amend Sweden’s corporate tax rules, and implement the interest expense limitation rules in EU Directive 2016/1164. Member states must adopt and publish laws, regulations, and administrative provisions necessary to comply with this Directive by December 31, 2018. They shall apply the provisions from January 1, 2019.

On May 3, 2018, the MOF sent Bill No. 2017/18:245 to Parliament for consideration. The May 3rd proposals would enter into force on January 1, 2019, if enacted.

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