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Sweden: Proposed changes to CFC rules

Sweden: Proposed changes to CFC rules

The Swedish government in early September 2018 published a legislative proposal (2017/18:296) that would impose “stricter rules” on companies subject to low taxation. The purpose of the proposal is to make it more difficult to use tax planning that involves companies in foreign jurisdictions.

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These proposed changes follow suggestions made by the tax agency to expand the Swedish CFC (controlled foreign corporation) rules. Under the CFC rules, income of foreign entities subject to low taxation may in some instances be subject to taxation in the hands of Swedish shareholders.

The government’s proposal would generally align the Swedish rules with an EU directive (Council Directive (EU) 2016/1164 or the anti-tax avoidance directive (ATAD)) that addresses tax avoidance practices that directly affect the functioning of the internal market. 

  • Under the proposed CFC rules, a few countries would be removed from the “white list” of exempt jurisdictions (including Malta). Otherwise, there could be a number of countries where income of companies, if deemed subject to low taxation, would be subject to Swedish taxation at the shareholder level. 
  • There are proposed changes to the rules concerning “contingency reserves” of insurance companies. Tax-entry provisions are proposed. Certain other proposed changes would aim to satisfy the directive’s rules on eliminating double taxation of shareholders in CFC entities. 
  • The directive’s measures apply to corporate taxpayers, but the Swedish CFC rules (including the proposed changes) would apply both to legal entity shareholders and individual taxpayers.

The changes are proposed to be effective 1 January 2019.

KPMG observation

Possible implications of the proposed CFC changes could be that any possibilities to escape Swedish CFC taxation on the basis of the ”white list” would be reduced, and this, in turn, could trigger ”actual establishments” becoming more relevant (a possible intention of the proposal). It is expected that the changes concerning contingency reserves could likely extend future CFC taxation in Sweden to insurance businesses located in certain low tax jurisdictions.

 

Read a September 2018 report prepared by the KPMG member firm in Sweden

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