The new 3:12 rules committee are getting towards the finish line. What tax increases for owners of closely held companies can we expect?

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PwC-skatteradgivning-Group-outline_0002_burgundyThe current 3:12 rules committee reviewing the taxation of dividends and capital gains for owners of closely held companies is now in its final round. The committee’s major aim is to determine if so-called fiscal income conversion takes place from income from labour to capital income, and if the rules in place are misused. This has been claimed by certain researchers, even if research results are not unanimous, and has also been purported by certain politicians.

All in all, the work of committee, according to its directive, is to result in proposals which, taken together, will result in tax increases for owners of closely held companies. Many owners are worried due to these signals.

Something that is new since Tax matters last addressed this issue is that the committee now has a new head secretary, an individual from the Swedish Tax Agency. Furthermore, the committee has grown by three, one economist from Uppsala University, The Swedish Confederation of Professional Employees (sv: TCO) now has a representative and the Ministry of Finance has added one more representative, the individual who had written the directive.

The review is to be finalised no later than 1 September 2016. This implies that the proposals must, in principle, be completed before the summer. No extension of the deadline has been announced but neither is this totally unthinkable as the new rules can very probably, at any rate, not come into effect on 1 January 2017. Partial proposals prior to this can never, in principle, be excluded when committees work with directives regarding increased taxes.

What proposals for changes are in the cards? When a review has reached this phase, there is usually a list of proposals being considered the economic effects of which can be calculated.

According to the directive the following, amongst others, are areas of focus:

  • Tax rate on dividends and capital gains within the threshold amount and in excess of the threshold amount.

Comments: This implies that today’s 20 percent tax on the threshold amount could, for example, be changed to 25 percent. The tax rates applying in excess of the threshold amount are more difficult to forecast.

  • Rules regarding saved divident distribution capacity.

Comments: This point incorporates basically a real threat which owners should be aware of. Currently, there is, according to the Tax Agency, slightly more than SEK 500 billion in saved threshold amounts regarding which they feel there is no knowledge of the manner in which these amounts will impact state tax revenues in the future.

  • The maximum amounts which can be taxed as services in dividend payments and as regards capital gains.
  • Size of salary-based thresholds.
  • Rules for calculation of return on invested capital.
  • Size of the standard amount in the alternative simplification rule.
  • Premises for applying the simplification rule.

When the committee has presented its proposal, it will be distributed for referral to the various entities concerned. Then, there will be the usual Parliamentary handling of the proposal. It is deemed that any proposals for new rules will not come into effect prior to 1 January 2018. The Parliamentary election will take place later during 2018.

Further comments

It is easy to understand our clients’ and other companies’ concern given the open-endedness of the directive as it is formulated. PwC wishes to bring attention to the possibility for owners to, prior to meetings of shareholders in the spring and also at other points in time, consider the amount of dividends within the threshold which could and should apply for owners of close companies. When there are changes, which considered together, indicate that higher tax rates are in the offing, the advice to owners is to have a clear strategy for how the profits in the company are to be used during forthcoming years.

Such a strategy can only be undertaken case by case. One thing is clear; this time around it is not a question of any reduction in taxation of owners of closely held companies.

Hans Peter Larsson and Peter Hellqvist

Do you have any questions on entrepreneur and SME Taxes?

Hans Peter Larsson

Hans Peter Larsson

Hans Peter Larsson har tidigare arbetat på PwC med skattefrågor bland annat med inriktning på beskattning av ägarledda företag och deras ägare.
010-213 31 01
Hans Peter Larsson works at PwC’s office in Stockholm, focusing on tax issues such as taxation of owner-managed companies and their owners.
+46 10-213 31 01

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