– On Thursday, June 26, National Foreign Trade Council (NFTC) President Bill Reinsch sent a letter to Swedish Minister for Finance Anders Borg and Minister for Enterprise Annie Lööf expressing concern about the proposal to introduce a new system for corporate taxation recommended by the Swedish Committee on Corporate Taxation.
In the letter, Reinsch wrote:
“We are writing to express our concern about the proposal to introduce a new system for corporate taxation recommended by the Swedish Committee on Corporate Taxation. As we understand it, the Committee’s proposal, which replaces the existing rules limiting the deduction of interest expense, consists of two parts:
- Withdrawing the deduction for ‘financial costs’; and
- Substituting this with a standard deduction for all financial costs – a ‘finance allowance’ – at a rate of 25 percent of net taxable profit.
“To finance these changes, the Committee proposes that the deductibility for existing losses from previous years is reduced to 50%.”
The “financial costs” changes will favor equity financing over debt financing to the detriment of companies that choose debt-based financing for its flexibility. The “financial allowance” would limit interest deductibility and penalize companies in cyclical industries that may be unable to deduct the true economic cost of an investment. The retrospective reduction in the net operating losses would result in the disallowance of existing losses and could have an adverse effect on company balance sheets.
“Our members believe that if this proposal is enacted in its current form, it could have a very serious adverse effect on inward investment into Sweden, which for many years has been a favored investment location because of its stable tax regime.
“…We have sympathy with the aim of curbing the most aggressive tax practices in this area. However, these proposed measures to combat excessive interest deductions, and the 50% reduction of historical NOLs calls into question the predictability and stability of Swedish tax policy. Additionally, since such a system does not exist in any other country, the risk of international double taxation of Swedish companies will increase, and ultimately could make Sweden an ‘outsider’ among countries seeking active business investment. Furthermore, it is precisely this lack of coordinated action that the OECD Base Erosion and Profit Shifting (‘BEPS’) project is intended to prevent.
“We believe that these proposals should be withdrawn. We encourage you to consider other types of proposals that will not have such a de
trimental impact on foreign investment into Sweden. Sweden has always in the past made an effort to provide an attractive investment environment.”
to read the full letter.
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