By Madeleine Thörning, Transfer pricing specialist at Thorning Koponen Consulting in Stockholm, Sweden
The Swedish government, on 3 September 2020, proposed to deny tax deductions for interest payments made to companies located in countries listed on the European Union’s list of non-cooperative jurisdictions.
The purpose of the proposed new regulations is for Sweden to fulfill its obligation as a Member State of the EU and to encourage other countries to act according to relevant international standards.
EU tax blacklist
The EU Economic and Financial Affairs Council in 2016 tasked the EU Code of Conduct Group for Business Taxation with listing all non-cooperative jurisdictions for tax purposes and determining potential countermeasures on an EU-level.
The criteria to be a listed jurisdiction on the EU’s tax blacklist include lack of tax transparency, fair taxation, or commitment to avoid base erosion and profit shifting.
The list of jurisdictions is updated regularly, and, as of 15 September, the following 12 jurisdictions are on the list: US Virgin Islands, American Samoa, Cayman Island, Fiji, Guam, Oman, Palau, Panama, Samoa Islands, Seychelles, Trinidad and Tobago, and Vanuatu.
On 5 December 2019, the Economic and Financial Affairs Council published guidelines on tax countermeasures the countries can take against non-cooperative jurisdictions.
The guidelines included a smorgasbord of four material countermeasures. EU Member States must adopt at least one countermeasure and implement the measure as of 1 January 2021.
The four tax measures are a prohibition of deductions for certain costs, controlled foreign company rules, withholding tax on certain payments, and limitations in the tax exemption rules for holdings for business purposes (Sw. Näringsbetingade andelar).
An example of the prohibition of deductions included in the guidelines includes denials for interest, royalty, and other payments for intangible property and service fees.
Sweden’s new proposal aims to conform to these EU requirements.
Swedish countermeasures
During the last decade, Sweden has implemented two sets of interest deduction limitation rules for group companies.
According to the Swedish government, this additional interest deduction limitation applicable to listed jurisdictions is in line with current regulations and will complete already implemented measures in the Swedish law to avoid base erosion and profit shifting.
This new proposed regulation will not only apply to intragroup transactions but also to interest payments to third-party companies in the listed jurisdictions.
According to the Swedish government, the other three tax measures included in the EU guidelines were not reasonable measures to be implemented into Swedish law to avoid base erosion and profit shifting.
These additional tax measures could not be appropriately aligned with current regulations; instead, they would require significant changes to Swedish law. Sweden also wishes to mitigate the effect on companies that are not targeted for these countermeasures.
Comments
The overall objective of the EU tax blacklist is to persuade non-cooperative jurisdictions to change their behaviour and consequently get off the list.
It will be interesting to follow the development and consequences of the Member States’ countermeasures towards the listed jurisdictions.
Swedish companies with transactions with blacklisted jurisdictions should carefully follow this development.
Madeleine Thörning
Latest posts by Madeleine Thörning (see all)
- Sweden proposes to deny tax deductions for interest payments to companies located in EU blacklist countries - September 15, 2020
- Swedish court rules against Flir Systems, upholds tax penalties of EUR 70 M (USD 76.5 M) - April 13, 2020
- Sweden’s tax agency rejects Puma’s transfer pricing position, concludes risk borne elsewhere - February 11, 2020
- Absolut wins Swedish transfer pricing dispute over application of benchmarking study and multiple year analysis - July 7, 2019
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