Income tax return tips for the 2016 filing

Companies with a financial year corresponding to the calendar year are to file their income tax returns for 2015 no later than 1 July 2016. Below are our comments regarding a number of frequently posed questions which can arise when preparing income tax returns.

Important dates

If your company files its return electronically, the due date is extended until 1 August 2016. However, we recommend that the preparation of the return takes place on the premise that the filing deadline is 1 July. The reason for this is that a number of difficulties can arise in obtaining and compiling information during the holiday period.

The final tax assessment will be sent to you during the late autumn. In case your tax account shows a deficit after the final assessment has been received, interest will be charged. This interest is charged from the beginning of February and is calculated on the base interest rate. If the account remains in deficit until May 2017, a higher interest rate will be charged based on the base interest rate + 15 percent. If you have questions regarding the balance of your tax account, you can request an account statement from the Tax Agency.

Representation

If the company makes deduction of representation expenses it is important to have complete documentation for this, for example, in the form of lists of the participants taking part in the various events. The starting point is that representation costs are deductible only if they have a direct connection with the business operations. For many types of representation, the right of deduction is limited on the basis of various standard amounts, which are announced by the Tax Agency each year.

Health care

Those costs which you as an employer incur for health care for employees, are, as a rule, deductible in the case the health care is publically financed. The right of deduction also includes costs for the employee’s medicine. The company’s health care benefit costs can usually be deducted. However, usually deduction is not granted for health and hospital care which is privately financed.

Intra-Group interest expenses

Sweden has had regulations in effect limiting the right of deduction of interest expenses on all intra-group receivables since 1 January 2013. The major rule in these regulations is that interest expenses on intra-group loans are not deductible, but there are exemptions granting right of deduction. With regard to the complexity of these rules, we recommend that you review the fiscal handling of any possible interest expenses.

Doubtful accounts receivable

Deduction of doubtful accounts receivable is granted when the loss is deemed final, for example, with a bankruptcy or official composition. If the loss is not final, deduction can be granted on the premise that an individual testing of the receivable in question has been undertaken and that active collection measures have taken place. Deduction for a collective valuation and write-down, that is, when the deduction is made on the basis of a certain percent of the total value of accounts receivables as at balance sheet date, is granted in exceptional cases only.

Tax allocation reserve

Companies have the right to report a reserve to delay taxation in a later year. Limited liability companies can deduct reserves reported in the tax allocation reserve at a maximum of 25 percent of the fiscal results of the company prior to the allocation. The reserve must be reported in the accounts in order for deduction to be granted in the income tax return. If you have reported reserves in previous years, remember that these amounts are to be reversed for taxation no later than in the sixth year after the year of the initial reporting of the amounts in the tax allocation reserve.

Depreciation of machinery and equipment

For machinery and equipment, the depreciation for tax purposes should correspond to the depreciation charged in the books and accounts, as long as the total net value of the assets is not less than the 70% of net value in previous accounts plus additions less proceeds of sales (i.e. 30% declining-balance depreciation) or cost less 20% per year (i.e. 20% straight-line depreciation on remaining assets). An alternative 25% decliningbalance method without correspondence to the books also exists.

Tax losses

In the case the company reports tax losses, it is possible to carry the tax losses forward and net it against future years’ profits. Limitations to this right can, however, arise in conjunction with e.g. changes in ownership, which is the reason we recommend that the company review the manner in which the deficit can have been impacted by such a change.

Group contributions

On certian premises, a company in a Swedish group can even out results in fiscal terms through an exchange of group contributions. In such a manner, the tax expenses might be eliminated within a group that report substantial report major tax losses.