Today, May 8, 2015, the Swedish government finally published the terms of reference for an inquiry chairperson on financial services sector taxation. The inquiry chairperson is tasked with presenting a proposal for a financial services sector tax which mitigates the sector’s supposed tax advantage due to the supply of financial services being VAT exempt. The proposal should be presented on November 1, 2016 at the latest.
The appointment of the inquiry chairperson has its origins in the perception that the financial services sector may currently be under taxed due to the VAT exemption for financial services, for instance. The introduction of a “bank tax” was proposed by the Swedish Committee on Corporate Taxation in its Swedish Government Official Report Neutral Corporate Taxation published in June 2014. In its 2015 Finance Bill, the government said that it was to appoint an inquiry on financial services sector taxation for the long term. The government’s short-term ambition was, however, to introduce a tax already on January 1, 2016 while awaiting the inquiry’s report. The intention at that stage was seemingly to limit the tax to credit institutions only, designing it as a “notional income” subject to corporate income tax and computed on a basis corresponding more or less to that of the Swedish financial stability fee. However, no clarity on the details of such a tax was given in the Finance Bill. After the government’s Finance Bill failed to gain sufficient support in parliament (leaving the opposition’s budget proposal to be applied) little progress has been seen in this issue. In April 2015, however, the government said it was not prudent to introduce a tax based on the Committee on Corporate Taxation’s proposal published last year, citing in particular EU State Aid rules. But it also stated its intention to revisit the issue. Today’s appointment of an inquiry chairperson on the taxation of the financial services sector should thus in our view be seen as an intention to settle the matter for the longer term.
The terms of reference for the inquiry chairperson
Under the terms of reference now given by the government (dir. 2015:51) the inquiry chairperson is tasked with quantifying the size of any tax advantage for the sector due to the supply of financial services being VAT exempt. Based on the quantification, the inquiry chairperson should also design a proposal for a financial services sector tax which mitigates the identified tax advantage. The tax should be analyzed from a legal, socio-economic, public finances and administrative perspective.
Under the terms of reference the tax may be designed in different ways and the inquiry chairperson may seek some guidance from the Danish “lønsumsafgift”, a Financial Activity Tax (FAT), for instance. The tax should be easy to apply, it should not be possible to circumvent and it should be in line with EU State Aid rules and EU law in general.
When designing the tax the inquiry chairperson should consider the potential impact on Sweden from a Financial Transaction Tax (FTT) perspective.
It is currently not possible to say whether any proposals to be presented by the inquiry chairperson on November 1, 2016 will ever enter into force. Nevertheless, in this context it should be stressed that during the 2014 general election campaign, former Minister of Finance Anders Borg said that an increase in the taxation of the financial services sector was to be expected going forward. In addition, the Moderate party recently reiterated this view pointing at a payroll-based FAT as an alternative. This indicates some degree of consensus across the political blocks, which could entail an increased probability of a financial services sector-specific tax actually being introduced.
It should be stressed that the terms of reference do not limit the inquiry to only certain actors within the financial services sector. As a starting point, the tax should cover companies supplying services subject to Ch. 3, s. 9 and 10 of the Swedish VAT Act, which would entail that banks, insurers, fund managers and other companies supplying VAT exempt financial services could become subject to the financial services sector tax.
Depending on its design, the proposal could have a major impact on the financial services sector. Bearing this in mind, it is advisable that companies within the financial services sector already today consider and try to assess what the impact could be from potential scenarios, both financially and from e.g. an IT-system perspective.
We will monitor the development of this issue going forward. The next step is likely that the inquiry chairperson presents its proposal on financial services sector taxation as a Swedish Government Official Report which is then circulated for formal consultation, providing government agencies and other stakeholders a chance to comment on the proposal. Considering the short period until the report is to be published, we currently do not expect the government to try to introduce a financial services sector tax in the interim period.
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