The purpose of the proposal is to make various kinds of tax planning involving companies in foreign jurisdictions more difficult.
In a previous TaxNews letter we wrote about changes suggested by the Tax Agency regarding the Swedish CFC legislation. CFC is an abbreviation for Controlled Foreign Corporation (or Company). Under the CFC rules, the income of foreign entities subject to low taxation may in some cases be taxed in the hands of Swedish shareholders/partners.
Last week, the Swedish Government published a proposal (2017/18:296) with legislative changes described by the Government as “stricter rules against companies subject to low taxation”. The purpose is to make various kinds of tax planning involving companies in foreign jurisdictions more difficult.
The proposed changes are meant to align the Swedish rules with an EU directive generally referred to as the Anti Tax Avoidance Directive, or ATAD (Council Directive (EU) 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market).
Under the proposed CFC rules, a few countries are removed from the so-called ‘white list’ of exempt jurisdictions, among them Malta. For a number of other countries, the list is furnished with exceptions in respect of inter alia insurance and financial business. In general, this means an extension of the number of countries where companies, if deemed subject to low taxation, may be subject to Swedish taxation at shareholder/partner level.
Furthermore, changes to the specific rules concerning so-called contingency reserves of insurance companies and tax entry provisions are proposed. Certain changes in order to fulfil the Directive’s rules on elimination of double taxation of shareholders/partners in CFC entities are also proposed.
The ATAD’s rules apply to taxpayers subject to corporate tax, whereas the Swedish CFC rules (including the proposed changes) apply equally to legal entity shareholders/partners and individuals. According to the proposal, the Government does not deem it necessary to have any additional rules in order to implement the Directive’s specific tax avoidance provision.
The changes are proposed to enter into force on 1 January 2019.
An effect of the proposed rules is that any possibilities to escape Swedish CFC taxation on the basis of the so-called ’white list’ are reduced. That, in turn, may result in the rule on ‘actual establishments’ (cf. the 2006 EU Cadbury Schweppes case) becoming more relevant, which may have been intended. Moreover, the changes concerning contingency reserves will likely lead to extended future CFC taxation in Sweden of insurance businesses in certain low tax jurisdictions.
The article in Swedish
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