Sweden proposes new system for corporate taxation: a redistribution of tax payments in the business sector

By Erik Björkeson

A Swedish government committee mandated to analyse the Swedish corporate tax system — including the need for a more comprehensive approach to the overall deductibility of interest expenses, as well as the strengthening of the equity capital of companies — has proposed new corporate tax rules.

On 12 June, the committee announced that it is proposing to introduce a new system for corporate taxation. The proposal is a modified comprehensive business income tax (CBIT) model. The model consists of two parts. First, deductions for interest expenditures and other financial costs will be limited by only allowing deductions for financial costs for which there is a corresponding financial income. No other financial costs will be deductible. The assessment will be made on a company group level. Should this proposal go into effect, deductions for net financial costs will be discontinued. 

Second, a standard deduction will be introduced for all financing costs — a ‘financing allowance’ — at a rate of 25 per cent of the company’s entire taxable profit. This financing allowance will be allowed whether or not the company has financial costs and, in terms of the financial effects for companies, will be equivalent to reducing the corporate tax rate by 5.5 percentage points (from 22 per cent to 16.5 per cent)…

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