If 2015 was a relatively calm tax year, then 2016 could see a real explosion of new developments. New corporate taxation regulations and a decision on changed 3:12 rules are on the agenda. At the same time the New Year’s bells are ringing out the message of sustainability also within taxation.
2015 took off in an atmosphere of difficulties and uncertainty. A new election was to have been called, and then, in December 2014, the famous agreement was reached whereby The Alliance chose to delay a walkover until 2018. This has implied that tax issues have been and continue to be in the hands of the Finance Minister, Magdalena Andersson, supported by the Green Party and the Left Party of Sweden.
With the New Year, 2015 and without delay, the directive on increased taxes for owners in close companies was issued. During the spring, the Corporate Tax Committee presented its final report on new corporate taxation. Three years of investigation with intense discussion has resulted in a new, unique model. The proposal received such extensive criticism that it is still being worked on by the Ministry of Finance after new, international input in this area was received during the autumn.
In the 2015 autumn budget, the government began to reverse its previous tax approach. A number of years’ tax decreases were exchanged for increased tax on labour and an increase in the tax rate by one percentage point. In general, there have been fewer changes compared with five to ten years ago. This is where we are just now. According to a number of experts, the Swedish economy is stronger than ever with a good growth rate as we enter 2016. A lot of positive measures must have been undertaken in recent years. However, it is worrying to see the decrease in productivity. During 2016, it is, therefore, a question of strengthening the situation where, in a number of areas, we hold, or are close to holding, the pole position.
More open playing field in 2016
Before the end of 2015, the “December Agreement” was torn up, so, now, the match can start once again! First out on the field is the Corporate Tax Inquiry Committee. Swedish start-ups and innovation-based companies need a functioning employee option model; otherwise, it will be Silicon Valley for an increasing number of companies. This question is multi-faceted and the expectations of many players are high.
Later during the spring, the Ministry of Finance is expected present a proposal for changed corporate taxation. Limitations on the deduction of interest expenses, calculated in some manner, perhaps in relation to profit, and decreased corporate tax rates can be news items, providing the financing is in place. We will also receive an answer to how loss carried forwards are to be handled. Can Sweden come in under the 20 percent corporate tax level?
After the summer, the Ministry of Finance will deliver their reply to the 3:12 question. Increased taxes have already been notified. A decreased thresholdamount, increased tax rate on the threshold, decreased portion of salary applied as the basis for dividends taxed as capital gains, are some of our guesses here. Add to this, the limitation on the utilisatoin of the saved threshold amount during a specific period of time. Probably, we will not see the actual introduction of any new regulations unitl 2017. With no December agreement in effect, the situation is ripe to end up in conflict should proposals worsening the plight of entrepreneurs be too extensive.
Are there, then, any jokers in the pack in 2016? The simplification proposals for private businessmen and forest owners have been put on ice. OECD’s body of Base Erosion and Profit Shifting proposals (BEP’s) can be more clearly defined. Larger Swedish companies need to review their tax strategies and can expect increased tax regulations in purchasing and manufacturing countries, as well as seeing offensive tax strategies being no longer possible to implement. The risk of double taxation on profits can increase. International trade requires increased foresight, so, no, BEPS is no real joker. But it does represent tax sustainability.
Magdalena Andersson now has the clearly expressed ambition to see a review of the tax system. Can this be a joker? A joker it might be, but prior to her choosing the colour of her mantle, I doubt she will start the process. That she would kick off the project in the context of the autumn budget is, I believe, not likely; playing such a joker demands a stable platform which is not in place today and this approach could also result in overkill, with an increased level of uncertainty during a long period of time. Sub-reforms are more probable.
No, place your bet on the two issues that get Sweden even closer to a pole position. An incentive inquiry contributing to improving the Swedish climate for innovation and invention. And the next major potential which needs to be utilised, the newly arrived. Make it easier for these immigrants to secure employment in the Swedish labour market just as soon as possible. Perhaps a flat tax rate on income from business operations during a certain period? To date, no one has addressed this latter question.
2016 is going to be an exciting year! If we manage it correctly, we can kick off 2017 in pole position.
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