Proposal for new regulations for interest deduction for companies in Sweden

Background

The Swedish targeted interest deduction limitation rules for companies were introduced in 2009 and have since then undergone several changes. They have on several occasions e.g. been tried by the European Court of Justice and found in conflict with EU law.

Sweden also has general interest deduction limitation rules since 2019. The general interest deduction limitation rules are based on the OECD BEPS project from 2015. One of the actions concerned interest deductions and the recommendation to introduce general interest deduction limitation rules. Sweden introduced such regulations in 2019 in line with the Anti-Tax Avoidance Directive from the EU. From the start it was already announced that the regulations would be reviewed after a few years. 

The targeted and general regulations have now been reviewed with the purpose to simplify and improve the regulations. Another reason is to better comply with EU law. The proposal that is now being made will, if enacted, mean several adjustments to both the general and the targeted interest deduction limitations. The proposal is suggested to enter into effect on January 1, 2026.

The proposed changes can be summarized as follows:

The proposed general interest deduction limitation rules

• The de minimis threshold will be raised from 5 to 25 million SEK.
• Group companies that belong to the same “calculation unit” (as defined under the rules) will make a joint calculation of the basis for interest deduction. The calculation unit will consist of companies that can exchange group contributions during the financial year. Partnerships and companies that have a decision from the government to give and receive group contributions will not be included in a calculation unit.
• Associated companies that do not have group contribution rights are not obligated to apply the same rule (i.e. main rule or de minimis rule). Companies that belong to the same calculation unit are, however, obligated to apply the same rule.
• The time limit for deductions for interest expenses carried forward is removed, and the carry forward amount will be reviewed and determined by the Swedish Tax Agency annually. This also applies to interest expenses carried forward from years before the proposed changes, i.e. fiscal years 2019-2025. The right to make a deduction for interest income is further extended in order to be deducted within the de minimis rule. 
• The calculation of the basis for interest deduction will be made without regard to tax losses carried forward and group contributions between companies within the same calculation unit. This, however, does not apply to companies with group contribution rights solely based on a decision from the government. These changes mean that the previously complex rules on the order between the interest limitation rules and the rules on deduction for tax losses carried forward can now be removed.
  

The targeted regulations for interest deduction restrictions

The targeted regulations for interest deduction will be further adapted to EU law. This by limiting the deduction for interest expenses to an associated company within the EEA to situations where the debt is part of an abusive arrangement that was put in place to provide a substantial tax benefit for the associated companies. The background for the change is that recent case law from the European Court of Justice, the Supreme Administrative Court and the administrative courts of appeals in Sweden has made it clear that the Swedish regulations are in conflict with EU law and must be adjusted. 

Other

The proposal also includes changes in procedural aspects such as the rules concerning the taxpayers’ reporting obligations, the Swedish Tax Agency’s right to reassess and tax penalties. As an example, the rules concerning tax penalties for taxpayers who report tax losses are improved. Currently, companies with tax losses normally are subject to higher tax penalties than companies in taxpaying positions. The proposal now suggests that tax penalties for companies that report tax losses will be c. 7% of the reduced tax losses (compared with 10% under current rules and 8% for companies that are in a taxpaying position).

The government does not propose any changes to the definition of interest. An alternative definition of interest is, however, being proposed for companies using the effective interest method, provided certain conditions are met. This should simplify the application of the interest limitation rules for companies that acquire non-performing loan portfolios. 

The possibility to include an exception from the rules for companies that have infrastructure projects will be further investigated, why no proposal is currently being made. The same goes for specific rules for hedges.

Deloitte’s comments

The regulations, which are proposed to enter into effect as of January 1, 2026, are mainly positive to Swedish companies. The increased de minimis threshold, which is mainly due to the raised interest rates on the market, is an example of one of the many positive changes.  

The proposed changes to the general interest deduction rules at the same time mean substantial changes in how the interest calculations are going to be made and may therefore require changes to year-end processes and tax return filings. The rules will e.g. require one calculation to be made for companies that can exchange group contributions. This can give rise to challenges for groups that have not properly reviewed group contributions in the group and/or do not coordinate the processes across all group companies at year-end or in connection to the tax return filing.  It may therefore already now be good to review these processes. As interest expenses carried forward will be reviewed and determined by the Tax Agency annually going forward, there may also be reasons to review historical interest expenses carried forward and consider the strategy forward.

The targeted interest rules differ from the initial proposal made in 2024. The initial suggestion e.g. required an assessment of fictive group contribution rights to be made to assess the right to an interest deduction. Further, the burden of proof for the Tax Agency in relation to abuse was expressed in the rule. 

The government has now chosen an alternative way that seems to be inspired from the so-called X BV court case from the European Court of Justice and which gives rise to several questions. It is e.g. no longer expressed in the rule that the Tax Agency has the burden of proof in relation to abuse.  The reason seems to be that the government thinks that it already according to EU law that the burden of proof in this respect lies on the Tax Agency, i.e. there is no need to express it in the rule. In addition, the requirement that the debt must have been put in place “exclusively or almost exclusively for the associated companies to obtain a substantial tax benefit” is now being replaced by “which purpose is that the associated companies will obtain a substantial tax benefit”. It remains unclear exactly what these changes will mean for the application of the rules.

We, at Deloitte, will of course closely monitor the development on these rules and keep you updated during the year. The interest limitation rules will be high on our agenda during the fall!