Sweden: Corporate tax cuts, interest deduction limits - KPMG Global
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Sweden: Proposals for corporate tax cuts, interest deduction limits

Sweden: Corporate tax cuts, interest deduction limits

Sweden’s government today released a memorandum proposing corporate tax cuts and new interest deduction limitation rules.


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The measures are proposed to be effective 1 July 2018. The memorandum will now be subject to consultation, with input required by 26 September 2017.

Corporate tax rate and other proposals

  • The corporate tax rate would be reduced from 22% to 20%. 
  • Tax rules on financial leases would be introduced. 
  • The rules for impairment deductions for rental housing would be changed so that in addition to the normal deduction for depreciation, 10% of expenses could be deducted within a five-year period from the completion of the rental housing.
  • An increase in the flat rate income on allocation reserve (periodiseringsfond) is proposed.
  • Reversal of allocation reserve would be at 110% when the reserve is reversed to taxation at the proposed lower corporate tax rate.
  • A limitation in the use of brought-forward losses would be introduced during a two-year or alternatively three-year period. The limitation would essentially mean that only 50% of trading profits could be reduced by brought-forward losses, with the remainder of brought-forward losses being carried forward.
  • A temporary flat income on security reserve is introduced (10%) as well as a permanent annual standard income (government bond rate).

Interest deduction limitation rules

  • A general limitation of interest deductions in the corporate sector would primarily be introduced as an “earnings before interest and tax” or EBIT rule (the cap for deduction would be calculated as 35% of EBIT) and, secondarily, as an EBITDA rule (the cap for deduction would be calculated as 25% of” earnings before interest, tax, depreciation and amortization” or EBITDA).
  • Equalization of interest deduction capacity within a group would be possible, between companies that are able to exchange group contributions.
  • Unused interest deduction capacity could be used in the following year but would be lost in the event of a change in ownership.
  • Interest of up to SEK 100,000 per group could be deducted without limit.
  • The existing interest deduction limitation rules for certain intra-group loans would remain in place but would be amended. The definition of “group” would be extended to include further ownership constellations. Furthermore, the current 10% rule and the so-called “business purpose test” would be repealed and replaced by a rule providing that interest is not deductible when the debt relationship has been entered into “exclusively or as good as exclusively” for the group to obtain a significant tax benefit. For deductions, it also would be required that: (1) the lender is resident within the EEA, or (2) the lender is a resident of countries with which Sweden has an income tax treaty or double tax agreements, or (3) the lender is subject to tax of at least 10%. 
  • An interest deduction prohibition is proposed in respect of certain cross-border situations (hybrid rules). The prohibition would apply when a company in another country obtains a tax deduction for the same interest expense or when the corresponding interest income is not subject to tax due to the classification of the income for tax purposes.

KPMG observation

The Swedish rules for interest deductions in the corporate sector have been the subject of discussions and various changes for many years. The Ministry of Finance has now presented its proposal as to how Sweden would adapt its legislation regarding, inter alia, interest deductions in line with the EU Anti Tax Avoidance Directive of 12 July 2016. It have been observed that the government primarily advocates an EBIT rule, despite of the fact that EBITDA is generally internationally applied and also endorsed by the OECD and the EU. The government also advocates that the current interest deduction limitation rules remain in place, albeit with a somewhat more limited scope, despite certain criticism (e.g., in respect of legal certainty and difficulties in application). It remains to be seen how this will be received in the consultation. Furthermore, the Ministry of Finance proposes restrictions on the use of brought-forward losses and wants to introduce a flat-rate income on security reserves—also proposals that are expected to be subject to comments.


Read a June 2017 report prepared by the KPMG member firm in Sweden

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