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3:12-Proposal – Replies from the second round of consultation

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PwC-skatteradgivning-Pen+Paper-solid_0001_maroon.pngThe consultation replies to the Government’s re-worked proposal for changed 3:12 regulations for closely held companies have now been received by the Ministry of Finance after the second round of consultation.

During the autumn of 2016, after an investigation period of more than two years, the so-called 3:12 Committee presented its report (SOU 2016:75). This was subsequently sent out for consultation and the replies were received by the Ministry of Finance in February 2017.

As we have previously reported upon in Tax matters, the Ministry of Finance has based its work, considering the views presented in the first consultation replies, on the draft proposal to be presented to the Council on Legislation. Certain aspects of the 3:12 investigation’s original proposal were adjusted in this draft proposal. Those parts of the investigation which were adjusted and, then, sent on a second round of consultation referred to the proposals concerning:

  1. The so-called ”ladder” for calculating the salary-based limit in the company whereby this is to be calculated as the partowner’s share of salaries and which is to be applied according to various levels (15 percent up to 6 income base amounts, 30 percent up to 60 income base amounts and 40 percent on salaries in excess of 60 income base amounts).
  2. The possibility for partowners, with shareholdings equivalent to less than 4 percent of capital, to be imputed a limited portion of the salary-based limit, that is, at a maximum of 0.25 times their own or related parties’ cash compensation.
  3. A limited upward adjustment of previous years’ saved dividend allowance (government borrowing rate plus 2 percent).
  4. A common so-called ”capped amount” for the portion of dividends and capital gains from closely held companies to be taxed as labour income, per income year (120 income base amounts, which is equivalent to SEK 7,380,000 for 2017).

Of the approximate 50 consultation replies which have been received, the majority express the view that the proposal for a changed calculation of the salary-based limit (”the ladder”) implies regulations which are difficult to understand. The impression is that such a proposal can contribute to companies not being equally motivated to employee personnel, as the owners of the companies applying the 3:12 rules, no longer can include the salaries in their low tax limit to the same degree.

The 3:12 investigation’s proposal regarding the elimination of the equity requirement is welcomed by many. Against this background, it was expected that criticism would now be focused on the implementation of a special capped amount (0.25 times own or related parties’ salaries) in terms of how certain minority owners can be imputed a limited amount of the salary-based limit.

The increase and tightening of the capped amount in terms of the portion of dividends /capital gains which can be taxed as labour income (120 income base amounts) is seen by many to be unacceptably high. This applies, in particular, in consideration of the fact that it is also proposed that the calculation of the capped amount be limited to one income year.

In conclusion, the absence of uniformity in the taxation of partowners covered by the 3:12 regulations is questioned, in particular as regards the reformed equity requirement, while, at the same time, the increased complexity of the regulations is also noted by a number of those providing replies. We have summarized below a selection of the consultation replies received by the Ministry of Finance.

Swedish Tax Agency

The Tax Agency brings to the fore the view that the starting point in the proposed changes in these rules should comprise of a division between the classes of income (that is to say between labour and capital) so that income from labour is taxed in the income class for services. The Agency also noted that it is important to simplify the regulations.

With this background, the Tax Agency agrees with the proposal as regards:

  • Partowners with shares less than 4 percent are to impute a limited salary-based limit (0.25 times salary).
  • There is to be a limited upward adjustment of the saved dividend allowance based on the government borrowing rate plus two percent.
  • Introduction of a common capped amount of 120 income base amounts for dividends and capital gains in labour income.

However, the Tax Agency does not agree with the re-worked proposal regarding the percentages to be applied to the two lower levels of the ”ladder” (15 percent, respective 30 percent). The Tax Agency is, instead, of the opinion that the levels should be determined according to the investigation’s proposal, that is, at lower levels, 10 percent, respective 25 percent. The Agency is of the opinion that the new proposal would increase the possibility of so-called “income shifting”.

The Tax Agency also presents a number of views against certain aspects of the transition rules.


In its reply, FAR rejects the proposal that the calculation of the salary-based limit is to take place according to the so-called ”ladder”. FAR proposes, instead, a straight percentage of 25-35 percent to impute the company’s salaries. The individualization of the salary-based limit between partowners also implies that partowners with varying degrees of shareholdings incur varying limits, which could lead to conflicts.

FAR is very critical regarding the proposal to introduce a special capped amount regulating the salary-based limit which partowners owning less than 4 percent of equity can be imputed. FAR is of the opinion that such negative discrimination of minority partowners distorts competition and creates entry barriers which negatively impact growth and employment.

FAR is of the opinion that the increase and tightening of the ”capped amount” at 120 income base amounts per income year lacks motivation and does not create an incentive for entrepreneurship.

Näringslivets Skattedelegation (Swedish Tax Delegation for Industry and Commerce)

Näringslivets Skattedelegation (NSD) states in its consultation reply that the proposals to the new 3:12 rules imply significant negative effects and a notable increase in taxation of entrepreneurs in Sweden. NSD is of the opinion that the tension between labour income taxation and capital income taxation should, instead, be reduced through lower marginal tax rates. Neither the 3:12 investigation nor the Ministry of Finance have evidenced any actual “income shifting” which could motivate the need for increased taxation of companies. Furthermore, the NSD believe that the Government has not given consideration to the positive effects, that is, increased tax revenues from dividends, which the current 3: 12 rules have contributed to government finances since those rules were reformed in 2006.

NSD is also critical of the proposal for a change in the calculation of the salary-based limit. The companies’ interest in employing more personnel will decline as they will no longer be compensated for the risk they assume in such additional employment. However, NSD believes that the individualization of the equity requirement level is logical.

Similar to many other parties presenting consultation replies, NSD welcomes an elimination of the equity requirement as a step in the right direction. At the same time, NSD notes that the introduction of a capped amount in terms of the amount a minority owner can be imputed is unacceptably low and creates distortions in terms of competition. The equity requirement should, instead, be entirely eliminated.

NSD does not agree with the proposal to limit the upward adjustment of the saved dividend allowance.

The proposal to introduce a common capped amount for dividends and capital gains is something which NSD welcomes, in principle. However, NSD believes that both the proposed level of 120 income base amounts is too high, and that the period of time of one and the same income year is too short.

In addition, NSD believes that the proposal is not entirely well thought through in terms of generational shifts of family owned businesses. The final proposal to the Council on Legislation should be changed so that the effect of any new regulations on generational shifts of family owned businesses are not, unnecessarily, delayed.

What happens now?

The Government will now review the consultation replies and produce a final proposal to the Council on Legislation to be subsequently presented to that Council. The Council will have the responsibility to review the proposal and the Government intends, then, to present a final proposal to Parliament. It is difficult to determine when this will exactly take place but the intention is that the new rules will come into effect on 1 January 2018.

Do you have any questions on entrepreneur and SME Taxes?

Fredrik Richter

Fredrik Richter

Fredrik Richter är verksam vid PwC:s kontor i Jönköping och arbetar primärt med omstruktureringar av och beskattningseffekter vid försäljning av s.k. fåmansföretag, fastigheter, bolagsbeskattning samt internationell beskattning. Fredrik är även delaktig i PwC:s idrottsnätverk.
010-212 52 37
Fredrik Richter works at PwC’s office in Jönköping and works primarily with restructuring and taxation effects on the sale of what are known as close companies, properties, corporate taxation and international taxation. Fredrik is also a member of the PwC sports network.
+46 10 212 52 37

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