Adaptation of the rules on interest deductions to EU law

Mathias Tegnér (S)

Mr. Speaker! The Committee on Taxation's report number 8, Adjustments of the interest deduction rules to EU law, can be perceived as technical and difficult. I realize that not all citizens in our country normally go around thinking about the interest deduction limitation rules for limited companies. But fundamentally, good people, it is an important issue for most of us, because it actually concerns justice, about right being right, and about our ability to stop tax evasion and aggressive tax planning.

The background is that since 2019 we have targeted interest deduction limitation rules in the Income Tax Act. The main rule is simple: interest in business operations shall, as a starting point, be deductible. But for groups, companies in interest communities, where there is a significant influence or a common management, there are special limitation rules.

The purpose of this is clear. We and the legislation want to counteract the use of intra-group loans to move profits from Sweden to other countries and thereby erode the Swedish tax base.

The problem with the rules that we are debating today is that they have been judged to be in conflict with EU law. In the so-called Lexel judgment, the ECJ rules that the previous formulation of the exception rule is insufficient. The question we are talking about here today is therefore how we can both comply with EU law and at the same time stop advanced tax planning and tax evasion.

Mr. Speaker! We Social Democrats have been critical that the government has done far too little to close loopholes in the Swedish tax legislation.

Some of the examples we have raised during the mandate period are exit tax, withholding tax or coupon tax, rules for capital insurance, and resources to replace Skatteverket's old data systems. These are some examples of the government's shortcomings when it comes to the fight against tax evasion and tax fraud.

As we have stated previously, it is not enough for the government to say that it wants to combat tax evasion and tax fraud if, in practice, it does not do much. One must, of course, also take action.

For Sweden and for our competitiveness, both a good business climate and effective rules were needed. But we also need a proper effort against tax evasion. We Social Democrats believe that it is important, right, and necessary to work with all these issues. We need to have both competitive rules and a good business climate, and at the same time, we need to have good and effective rules to stop tax evasion.

In this case, however, the government should be commended, because this proposal closes loopholes, rectifies our regulatory frameworks and ensures that Sweden follows EU law and at the same time has effective tools against tax evasion.

We Social Democrats believe that the proposal that the government has put forward – which does not completely follow the investigation proposal on new legislation that was submitted a few years ago – is good. It is good because it takes advantage of the fact that the European Court of Justice's practice has changed after what is called the Lexel judgment. The proposal simply makes better use of later judgments in the European Court of Justice, such as the judgment that is commonly called the X BV judgment.

The core of the proposal is that interest expenses to a company within the same group as the starting point shall be deductible, just as they should be. However, this does not apply if the debt relationship is part of what is called an artificial arrangement.

Then the question naturally becomes: What is an artificial arrangement? In this case, in the legislation, it is precisely about arrangements where the purpose is for the group to receive a substantial tax benefit. It is therefore not about ordinary, commercially motivated, internal loans. Instead, it is about structures where the debt in practice lacks a real business function and where the loan exists only to create interest deductions in one country and interest income in another, often a low-tax country. It can also be about the intermediary company functioning solely as a pass-through entity without substance.

With the new rules, it becomes clear. If the arrangement is primarily intended to create a tax advantage, it is not permitted, and in that case, the deduction should also be able to be denied even if the interest itself is market-based. This is hopefully a precise tool against advanced tax planning.

It is important here that the policy is clear that the legislation exists precisely so that artificial arrangements with internal loans do not lead to the interest being deductible. Both the Riksdag and the government must be prepared to follow up that this works in practice.

Mr. Speaker! In the report, there is a motion from the Center Party, which has expressed concern over increased administrative burden. We Social Democrats believe that it is a fundamentally important issue; we must always ensure that the administrative burdens on companies do not become too great.

But in this context, we also need to be clear that rules intended to catch artificial arrangements cannot be made mechanical. This means by definition that it will become administratively tricky for certain companies to follow the rules. If one does not do it in that way, it leads instead to unfair tax competition, which is also a major problem for companies.

Therefore, this type of rule must be based on more overarching criteria, precisely in order to be able to capture new types of tax arrangements that we do not know about today. But again: The alternative to doing it in this way is worse, because then we open up for new loopholes. It would be significantly more expensive both for the state and for all serious companies that want to compete on equal terms.

Mr. Speaker! Those who want to reduce the administration for companies could have supported the proposal to raise the threshold for the simplification rule from, for example, 5 million to 25 million Swedish kronor. This is an issue that has been discussed, but as far as I know, there are no parties here in the Swedish Riksdag that have stood behind this in the budget process. It is understandable, as it would have entailed a cost of approximately 1.5 billion to introduce that type of higher threshold. But it would have actually made things easier for smaller companies.

In summary, Mr. Speaker, we Social Democrats believe that the government needs to increase the pace when it comes to tax evasion. But in this specific case – in this report – we share the government's view that it is not possible to further specify the concept of contrived arrangements in the legislative text without simultaneously undermining the effectiveness of the legislation.

We Social Democrats believe that the report is about standing up for the fact that the Swedish tax base is not eroded through advanced tax planning and tax evasion in an international environment, while simultaneously respecting EU law. This proposal from the government actually manages to handle both things at the same time.

We Social Democrats want a tax system where those who do the right thing feel security and where those who try to exploit loopholes are met with clear and effective rules. Therefore, we support the bill, move for approval of the committee's proposal in the report and reject the motion.

(Applause)

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Anders Ådahl (C)

Mr. Speaker! Emissions must go down, and jobs must increase. We have a new party leader in Centerpartiet, but the course remains fixed.

If jobs are to increase, the conditions for companies must be strengthened. The Centre Party stands at the forefront to defend the companies and develop their opportunities to conduct their business.

Recently, we presented a report with 101 proposals for regulatory simplifications. Clearing up the jungle of rules is a priority. We are highly vigilant regarding new legislation so that we do not further complicate things for the companies. Every time we receive the government's proposals, we read them with this in mind: How will this work in practice for our Swedish companies? We review them, and we come up with new proposals to strengthen the development for our Swedish companies.

The reason for this is simple for the Center Party but not obvious for everyone. It is Swedish entrepreneurship that builds our prosperity. It is with a sound and well-functioning business sector that we can, in the long run, finance and develop our healthcare, our school, and our elderly care. It is the companies that have built Swedish prosperity, and so it will continue to be. The Swedish modern state with an inclusive and well-developed welfare would collapse without a robust entrepreneurship. The jungle of red tape slows down our welfare development.

Mr. Speaker! When we in the Center Party take note of the government's bill to adapt the interest deduction rules to EU law, there is much we agree with. We are completely in favor of the purpose of the proposed legislative change. It is good to ensure alignment with EU law and good to counter improper tax planning. We want to see a balance between competitiveness and the state's tax revenues in such a way that companies are allowed to use internal and legitimate loans, but that the state protects the tax base against aggressive tax planning.

When we examine the proposals through the eyes of the companies, they nevertheless raise a couple of question marks: To what extent will the new rules increase the administrative burden for small and medium-sized enterprises, and what does the unclear concept of artificial arrangements actually mean legally?

Let us not add more jungle to the companies' regulatory world. To introduce legislation, as the government proposes, where a supporting legal foundation is an undefined concept that is artificially constructed is to ask for trouble for the companies. We foresee court trials where disputes are judged in a rather arbitrary manner. It is hindering for entrepreneurship and unnecessary when we are now to enact a new law.

Furthermore, we in the EU need to strengthen our global competitiveness and thereby safeguard the free movement of capital within the EU. It is unclear whether this legislative change fully takes this into account. There is also a risk here that the proposed legislation hinders development, in this case by restricting international investments.

Mr. Speaker! Companies need clear and predictable rules of the game. This proposal for a legislative change must live up to exactly that, so that we do not risk disadvantaging Swedish entrepreneurship. The government's proposal risks leading to a significant increase in the administrative burden, especially for small and medium-sized enterprises. In order to be able to show that an internal loan does not constitute a so-called artificial arrangement, companies will need to establish extensive documentation.

Mr. Speaker! I move for approval of the Center Party's reservation, which concerns that the new rules on interest deductions must not lead to a disproportionate administrative burden for companies.

(Applause)

The speech at riksdagen.se, in Swedish (opens in a new tab)

Erik Hellsborn (SD)

Good morning, Mr. Speaker! Today we are addressing SkU8 Adjustments of the interest deduction rules to EU law.

The starting point in the Swedish Income Tax Act is simple: interest in business activities shall, as a general rule, be deductible. For companies within the same group of interests – i.e., groups and related companies – there are, however, targeted interest deduction limitation rules, precisely to counter tax planning through internal loans.

Today, the rules are based, among other things, on two central parts: firstly, the exception rule in Chapter 24, Section 18 that deductions can be denied if the debt relationship has arisen largely exclusively to provide the interest community with a substantial tax benefit, and secondly, the acquisition rule in Chapter 24, Section 19 that for internal loans financing an intra-group acquisition of ownership rights, it is required that the acquisition is substantially commercially justified.

These rules have been tested against EU law. The Court of Justice of the European Union has, in the so-called Lexel case, established that the previous formulation of the exception rule in certain cross-border situations constituted an impermissible restriction of the freedom of establishment. The Supreme Administrative Court has also found that even the current rules may conflict with EU law in certain cases. The rules are therefore proposed to be adjusted to become compatible with EU law, without us, for that matter, giving up the fight against tax evasion.

The core of the proposal is that interest expenses to a company within the same group of undertakings within the EEA shall, as a rule, be deductible. Deductions may, however, not be made if the debt relationship is part of an artificial arrangement whose purpose is for the group of undertakings to receive a substantial tax benefit. A new provision is therefore introduced, which clearly reflects the Court of Justice of the European Union's case law regarding artificial arrangements. The acquisition rule is retained, but its application is narrowed so that it becomes compatible with the freedom of establishment.

Mr. Speaker! Why should the Riksdag then vote for this? There are three main reasons why the Riksdag should approve the bill.

The first is legal certainty and EU compatibility. As legislators, we have a responsibility to ensure that Swedish tax legislation is compatible with EU law. Today we know, through both the Court of Justice of the European Union and the Supreme Administrative Court, that current rules in certain situations do not meet the requirements for freedom of establishment and equal treatment. To then fail to act would be to accept continued uncertainty for both companies and the Swedish Tax Agency.

With the proposal, the legal situation is clarified: Serious intra-group loans within the EEA can be counted with deduction rights, but artificial, tax-driven arrangements are stopped. This favors predictability, stability, and legal certainty.

The second is continued powerful protection against tax evasion. That we adapt the rules to EU law does not mean that we give up the fight against aggressive tax planning. By introducing an explicit provision on artificial arrangements, we align with the line that the Court of Justice of the EU has established: Normal commercial loans shall not be affected, and purely artificial arrangements where the main purpose is tax benefits shall be able to be fully denied deductions.

This is a reasonable and accurate balance. We safeguard a sound tax base without punishing ordinary business transactions.

The third is equal conditions for Swedish companies. Swedish companies operate in an integrated European market. If our rules deviate from the requirements of EU law, it creates uncertainty, disputes, and a risk that investors choose other countries. Clear, EU-compliant interest rules strengthen Sweden's attractiveness as an investment country and create more predictable rules of the game for international corporations.

Mr. Speaker! With this report, we take responsibility for adapting Swedish law to EU law, creating clarity and predictability for companies and at the same time guarding the legitimacy of the tax system by continuing to counter artificial tax schemes. The Riksdag should therefore stand behind the proposal.

(Applause)

The speech at riksdagen.se, in Swedish (opens in a new tab)

Crister Carlsson (M)

Mr. Speaker! I would like to begin by moving for approval of the committee's proposed decision in the Committee on Taxation's report SkU8 Adjustments of the interest deduction rules to EU law and rejection of the motion.

A good business climate is created through a combination of attitudes, rules, and knowledge that meet the entrepreneur in everyday life, both at the local and national level. It can be about creating an environment where companies can grow, hire, and contribute to, for example, welfare.

Important factors are, for example, good regulations and a bureaucracy that is simple, clear, and predictable, and which reduces the administrative burden for entrepreneurs. Competitive taxes and incentives for investments encourage entrepreneurship and growth. Access to relevant skilled labor, that is, competence supply, is crucial for the development of companies. Well-developed digital and physical infrastructure such as roads, trains, and airports facilitate transport and communication. A stable and legally secure environment provides security for investments and business activities.

Regarding legal certainty, today's proposal adapts Swedish law to EU law. The current legislation has been shown to conflict with the freedom of establishment according to EU law, particularly following landmark judgments from both the Court of Justice of the European Union and the Supreme Administrative Court.

Mr. Speaker! Based on a judgment by the Court of Justice of the EU, it has been established that the Swedish targeted interest deduction limitation rules – a very long and complicated word – constitute a restriction of the EU's freedom of establishment. The restriction consists in that companies that pay interest to group companies in other EU countries are treated worse than if the corresponding group companies had been Swedish.

The proposal benefits legal certainty and equal treatment. Through the legislative change, Sweden avoids future infringement cases and ensures equal treatment between Swedish and foreign companies within the EEA.

The proposal shall also counteract tax planning. The purpose of the targeted rules is to prevent intra-group arrangements where interest payments are used to evade Swedish taxation.

Deductions are only prohibited in artificial arrangements. Companies that have legitimate business reasons are therefore not negatively affected. Only arrangements that lack real substance and are intended for cheating are hit by the new limitation.

If a dispute should arise, the burden of proof lies with Skatteverket. The authority must then demonstrate that the arrangement is artificial. It is not required that companies should unnecessarily devote large resources to proving their innocence. If problems should nevertheless arise, Mr. Speaker, the government is clearly required to act and adjust. The committee also considers, given what appears in the motion, just like the government, that it is not possible to further specify the proposed provision artificial arrangement.

In summary, the success and growth of companies are directly linked to society's ability to finance and maintain a high level of welfare. Without a functioning business sector, tax revenues would decrease and the resources for welfare services would not suffice. The legislative change is proposed to enter into force on 1 January 2026.

(Applause)

The deliberation was hereby concluded.

(Decisions were made under § 16.)

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