New Advance Ruling on Carried Interest

On October 2, 2024, the Swedish Board of Advanced Tax Ruling issued an advance ruling regarding the taxation of so-called carried interest. The main question examined was whether an individual who acquires shares with the right to returns from carried interest could be subject to salary taxation for the returns received on the shares. The Swedish Board concluded that this was not the case.

For many years, there have been disputes about how carried interest should be taxed for individuals associated with private equity firms. The primary question is whether the returns should be taxed as salarys or as capital income (where applicable, under the special closely held company rules in Chapter 57 of the Income Tax Act, IL).

On October 2, the Swedish Board of Advanced Tax Ruling issued an advance ruling addressing this question. The circumstances were briefly that an individual working as an investment advisor at a private equity firm received an offer to acquire shares that indirectly had rights to profits derived from carried interest. To be able to decide on the offer, the individual wanted clarity on whether salary taxation could be applicable to the received returns or if taxation would occur only when the funds left the individual's company and then according to the rules for dividends and capital gains in Chapter 57 of the IL.

The assessment by the Swedish Board of Advanced Tax Ruling

The Swedish Board of Advanced Tax Ruling found in its assessment that the individual would not be subject to salary taxation for the income. In this particular case, the Swedish Tax Agency had no other opinion and shared the individual's view that taxation should occur in the income category of capital, applying Chapter 57 of the IL.

Possible new rules 

Sweden is currently reconsidering whether to change its rules on carried interest. The current advance ruling is particularly interesting in light of this process. A preliminary proposal of new rules will be presented no later than January 20, 2025. The proposal is expected to clarify that profits derived from carried interest should be taxed according to Chapter 57 of the IL.