Corporate tax planning and structuring has been particularly challenging this year for Swedish tax practitioners. The authorities have increased their scrutiny of corporate taxpayers generally, but with a particular focus on leveraged transactions and ...
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Corporate tax planning and structuring has been particularly challenging this year for Swedish tax practitioners. The authorities have increased their scrutiny of corporate taxpayers generally, but with a particular focus on leveraged transactions and debt pushdown structures.
"The authorities have been on a crusade in a number of areas, especially leveraged transactions by private equity houses and foreign buyers as well as in private equity in terms of transfer of losses between companies," says one partner.
The Swedish private equity market has been active in the past 12 months and the focus on debt pushdown has posed challenges for practitioners advising clients in that sector since most private equity houses use multiple subsidiaries to make their investments. There is no limit on interest deductions in Sweden and as such it was formerly possible to offset the gains made by a target company with the interest payments to the parent company and so reduce the tax liability. However, groups are now being challenged vigorously on the level of interest charged by parent companies to subsidiaries.
There have been a number of court cases on the issue concerning the level of interest charged as between companies involved in leveraged transactions. Nordic Capital is under investigation in relation to this issue and a court case is pending. Practitioners comment that this has created uncertainty around financing of private equity transactions.
One practitioner says that this created uncertainty since what is deemed an appropriate amount of interest is subjective.
Another tax adviser goes further and says: "The tax authorities are challenging transactions that are perfectly within the bounds of the laws. They are looking for arguments and it makes it impossible to know what structures are safe and what structures are not."
A working committee is examining the issue and practitioners expect new legislation within the next two years. However, litigation on the issue will still go ahead and is thought likely to increase this year. This creates a challenging environment, though some tax practitioners welcomed the uncertainty. "It is actually not so bad for tax advisers since we have more opportunity to be creative," says one tax partner.
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