The Swedish Minister of Finance Magdalena Andersson writes in a Swedish newspaper, Dagens Industri, about how the Swedish government intends to continue its work on new interest deduction limitation rules.
Andersson does not believe that the main proposal presented by the Swedish Committee on Corporate Taxation in June last year should be implemented. Instead, she advocates an EBIT or EBITDA model. There will be a new round of consultations and new rules will enter into force in 2017 at the earliest. Our translation and summary of Magdalena Andersson’s article follows below:
– My overall assessment is that the EBIT model is the model which is best suited as a starting point. Despite the benefits with the financing allowance deduction, I think the model goes too far and that the adjustment would be too difficult. The model could possibly become relevant in the long term. Today, the EBIT model would work better in an international perspective, and it is perceived as more viable by the vast majority of companies. The model also means that the asymmetry between equity and debt funding as well as opportunities to do tax planning with interest deductions are reduced to a sufficient degree.
- However, as mentioned, further analysis and revision of the proposal is required, such as the definition of financing costs. Further analysis is also required on how the deductibility of the interest element of lease rentals should be treated.
- There is also a need to analyze whether the model should ultimately be based on EBIT or EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) and whether special solutions are needed for some industries – such as the finance and real estate sectors.
- The issue whether the current interest deduction limitation rules need to be retained and, if so, in what form must also be investigated. Whether to amend or repeal the financing proposal to reduce prior year losses to 50 % should also be looked into. Therefore, in my view, continued dialogue and a new referral of the final proposal from the Ministry of Finance will be necessary. Any changes will take effect no earlier than 1 January 2017. –
It should be obvious that the work of the Ministry of Finance on new interest deduction limitation rules should also take into account and be affected by the proposals from the OECD concerning international interest deduction rules (BEPS Action 4), which the OECD is expected to present this autumn. The discussion draft published by OECD in December last year indicates that the OECD recommendation may include a more far-reaching EBITDA model than those generally applied internationally.
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