Additional amendments to the Swedish Pillar Two rules due to new administrative guidance from the OECD

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On 1 January 2024, the Pillar Two rules came into force in Sweden as a result of the EU Minimum Tax Directive and the OECD model rules on global minimum taxation (i.e., the rules that establish an effective tax rate of at least 15 percent on a jurisdictional basis for large groups). Since then, the OECD has released new administrative guidelines which have gradually been incorporated into Swedish law. In light of the guidelines published in June 2024, further amendments are now proposed to take effect on 1 January 2026, through prop. 2025/26:22. As with previous amendments to the Swedish Pillar Two legislation, the new rules will, on a voluntary basis, be able to be applied with retroactive effect.

A central update is a more detailed method for the allocation of covered taxes within groups, for example, more detailed rules regarding the allocation of taxes between a head office and its permanent establishments in situations where a country’s domestic foreign tax credit rules, similar to the Swedish credit rules, allow credit based on an overall method. The new rules advocate a four-step method for allocating current tax and a five-step method for allocating deferred tax and are essentially an update of the simpler method set out in the OECD’s original guidance. For deferred tax, a simplification rule is introduced; an option to completely disregard deferred tax over a five-year period.

Another important practical issue concerns the five-year rule for deferred tax liabilities, where the OECD in 2024 clarified how to practically determine whether a liability has been reversed within five years. For example, different account categories that may give rise to deferred taxes were specified, as well as which methods (FIFO/LIFO) should be applied for each category to assess whether the deferred tax has been reversed within five years or not. Although the guidance as such is addressed in the legislative proposal, no new provisions are proposed, as the guidance is already considered to be encompassed within existing legislation.

Other changes include:

• Rules to clarify that assets leased out and treated as receivables in the parent company’s consolidated financial statements, but as tangible assets for income tax purposes, can be exempted from the five-year rule.
• Rules on how losses in permanent establishments should be taken into account when calculating the head office’s adjusted result, in situations where the losses have been offset against profits in other permanent establishments.
• Rules regarding the calculation of deferred tax when the value related to the top-up tax differs from the book value.
• Rules regarding joint ventures owned by different groups that are subject to top-up tax.

In summary, the proposal means that the administrative guidelines from June 2024 are now being incorporated into Swedish legislation, which is important for groups to be able to fully rely on Sweden’s legislation being consistent with OECD´s guidance.

Authors: Fouad Abou Chaaya and Ann-Charlotte Ljung