Tax in Focus
EY, Sweden Antoine van Horen and Magnus Pantzar
Transaction Tax Antoine van Horen
Tax Partners Antoine van Horen and Magnus Pantzar of Ernst & Young’s Transaction Tax group in Stockholm have over forty years of experience between them. Here they discuss Sweden’s transaction tax landscape and look ahead to key events in 2014.
Q Magnus Pantzar
Where does Sweden fit into the EU tax regime?
Sweden has a reputation of being a high tax country. In many tax rankings, Sweden has had the highest taxes in the OECD, although recent years beaten by Denmark. However, the taxes are high for individuals, levied as income tax, social security tax or consumptions tax. Taxation for companies in contrary is quite beneficial. The corporate tax rate was recently decreased to 22% which is relatively low. In an international context, in addition to the tax rate, the tax base is not very extensive. For instance, Sweden was one of the first countries after the BeNeLux countries to exempt capital gains and dividends from taxation within the corporate sector.
Q
What are the typical tax implications encountered with
transactions and what impacts can these have?
Large transactions practically always concern more than one jurisdiction. Therefore, it is important to understand and compare the different tax environments that will affect the transaction. Generally, what you try to achieve is a tax efficient structure by e.g. managing taxes leakage, on fund flows between countries. You would also always analyse capital gains tax, both to the current transaction as well as for a potential future sale. The issues connected to transactions are often similar in most countries, but Sweden is often better than many countries in facilitating transactions. The tax system offers opportunities to move latent tax liabilities from seller to buyer, which results in no immediate capital gains tax in many cases.
Q
How can companies plan for these tax implications and
what are the benefits of approaching transactions in this strategic manner?
The way to prepare for a transaction is simply to consider all of its aspects, which however might not be easy if you are less experienced in one or more aspects of a deal. It is common to miss out on relevant factors. From a tax point of view, it is important to think about tax synergies before putting the business case together. By doing that, the value of the tax attributes of seller, buyer and target in the different tax systems may be to your benefit.
Moreover, what is essential when doing transactions, is to document them properly Documentation is important in order to remember what was done and why in case of a tax audit five years later. We are in an environment where being right is not always the same as being able to prove that you are right before the authorities. Documentation is essential for valuations of assets too, especially connected to transactions between affiliated companies, in comparison to transactions with third parties.
Q
What advice do you have for 2014?
Next year will be a great year; there is a lot of promise. What might have an interesting development in 2014 is the so called exit tax on assets that are transferred to another country. We mentioned earlier that the Swedish tax system allows moving latent tax liabilities from the seller to the buyer, meaning that capital gains will not be taxed immediately. This is not allowed when assets are transferred across the Swedish borders, but instead, exit tax is levied on the capital gain. Exit taxes have in many cases been considered a violation of European law
because they are seen as a hindrance of the free movement of capital and freedom of establishment. As a result, Sweden has adjusted its legislation, but in the eyes of most people the Swedish exit taxes are still in violation of European law. We expect that pressure from the corporate sector in Sweden as well as in other countries will trigger global efforts in order to avoid this hindrance for the free movement. Sweden will likely react by amending certain exit tax rules. There is a window of opportunity here for those tax payers that feel that the current tax treatment in Sweden is unreasonable.
Q
Is the anything else you would like to add?
In 2011, the government appointed a committee to present proposals to amending the Swedish corporate tax system. The committee’s remit is to propose changes in particular to the limitation of interest deductions, withholding taxes on interest and tax consolidations between Swedish companies. The report is expected to come out in spring 2014.
Sweden will have general elections in fall this year. It is generally expected that there may be a change from the Conservatives to the Social Democrats, which potentially could lead to a more strategic change to tax policy.
Contact:
Antoine van Horen Partner – Transaction Tax Direct Tel: +46 8 5205 9154 Email:
antoine.van.horen@
se.ey.com
Magnus Pantzar Partner – Transaction Tax Direct Tel: +46 8 5205 9909 Email:
magnus.pantzar@
se.ey.com
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