The new interest deduction rules are getting closer

About a year ago, a proposal was submitted for changed (and hopefully improved) interest deduction rules for companies in Sweden. Following the usual consultation process, the government has now submitted a proposal for new regulations to the Council on Legislation (sw: Lagrådet) for review. This review is the last step before the government will send a final proposal to the Parliament for approval. The government proposes that the regulations will enter into force at the end of the year. In the article below, we summarize the most important proposals in the referral.

The general interest deduction rules

 The most important proposals in the referral are:

• The amount limit in the simplification rule is raised from SEK 5 million to SEK 25 million, which means that more companies fall outside the scope of the main rule. However, it is important to note that this limitation continues to apply to all companies within the same community of interest, which is why, among other things, the ownership structure may need to be analyzed before the choice of rule is made.
  
  
• A group-wide calculation of the deduction basis and net interest income will be introduced, through the introduction of a so-called calculation unit (sw: beräkningsenhet). This calculation is proposed to be mandatory for all companies with group contribution rights. Since the calculation mechanics will differ significantly from current regulations, this will also mean that companies and groups will need to review and update their internal tax processes and procedures.
   
• The government also proposes that companies within the same community of interest, but which do not have the right to group contributions, should not be forced to choose between the simplification rule and the main rule. However, within a calculation unit, the same rule must be used. This differs from the earlier proposal, where the entire community of interests had to choose between the main rule and the simplification rule. This difference should lead to increased flexibility within communities of interest (e.g. in the case of joint venture structures) and in structures where minority shareholders own more than 10 percent of the capital in one or more companies.
  
  
• The time limit for the right to deduct remaining negative net interest income will be abolished, so that companies do not lose the right to deduct such items after six years. This proposal should benefit companies with long investment cycles, for example in the real estate industry, as well as companies in a growth phase with large investment and development costs.
  
  
• The tax definition of interest generally does not change. However, an adjustment will be made so that companies that manage portfolios with impaired loans that are managed according to the effective interest rate method (e.g. debt collection companies) will have a clearer definition of interest rate that is linked to generally accepted accounting principles.

Infrastructure exemption is being prepared further

Many consultative bodies were critical of the fact that the inquiry did not propose an infrastructure exemption. The reasons given included the large infrastructure investments that Sweden is facing, the fact that a large number of Member States have introduced such an exemption and, unlike the earlier proposal, the consultative bodies did not identify any risks of tax evasion. The government has partly listened to the criticism and is not closing the door to an infrastructure exemption. Instead, it is written that the issue needs to be analyzed further.

The targeted interest deduction limitation rules

It has been obvious for a long time that the Swedish targeted rules regarding intra-group debt are not fully compatible with EU law. There have been several lawsuits surrounding the regulations, and as recently as May this year, the Supreme Administrative Court issued a ruling that further clarified the exception rule.

The Government therefore proposes that Swedish companies should be allowed to deduct interest to companies within the community of interest - if these are located within the EEA. The only exception to this is if the debt is part of an artificial arrangement whose purpose is to provide the associated community with a substantial tax advantage.

This differs from the earlier proposal, which was based on fictitious group contribution rights. It is clear that the new proposal has been influenced by, among other things, the X BV judgment from last autumn, where the Dutch law was accepted by the European Court of Justice precisely because it targeted artificial arrangements.

Our comments

The rules are proposed to come into force as early as 1 January 2026 and entail a major change in how companies should approach the issue of deductions for interest expenses compared to the current rules. Both in terms of compliance and processes, but also from a more overall strategic perspective.

The rules will probably lead to both simplifications and improvements for the majority of the companies affected, in terms of both the extended simplification rule and that all deduction bases in the group will be able to be used to be allowed deductions (compared to today's rules where consolidation of deduction bases is lacking). At the same time, it should be borne in mind that the group-wide calculation is mandatory. This may lead to lower allowable deductions in situations where several loss making companies now need to be included in the calculation.

Initially, the proposed regulations may also entail some practical difficulties in terms of, among other things, the introduction of a calculation unit. This is because the calculation of deduction space and net interest income within the calculation unit must include all companies with group contribution rights, which is a renewed centralized way of calculating and managing tax positions. In addition, it will be important to keep track of your saved negative net interest as this will now be formally determined by the tax administration annually. There may also be reason to review your historical net interest income, especially if you have previously used the simplification rule and have not received a full deduction.

Taking this into account, it will be important for Swedish companies affected by the regulations to have clear processes and controls in place to handle these positions in both financial statements and tax returns. In addition, it is of course also important to include the regulatory framework and its effects at a more strategic level in terms of, among other things, financing structure and future investments. 

In-depth seminar on Monday 3 November

PwC monitors the issue on an ongoing basis. We expect that the proposal will be submitted to the Parliament (Riksdag) in, or in connection with, the autumn budget.

A few weeks later, when our experts have had time to delve thoroughly into the final legislative text, we invite you to a seminar where we look at both the challenges and opportunities of the new proposal.

We will also present an updated version of the visualization we have developed for how the new rules can affect companies and organizations. A full invitation will come after the summer - but save the date for November 3. Please note – the seminar will be in Swedish.