Sweden’s next move to combat tax base erosion – Changing the rules for deductions of interest

Abstract: A part of the phenomenon known as tax base erosion and profit shifting (BEPS) occurs when multinational entities (MNEs) shift profits through the aid of interest payments and interest deductions. Sweden has attempted to address this issue through introducing rules limiting interest deductions in national legislation. Through the adoption of the first Anti-Tax Avoidance directive (the ATAD 1) by the European Union (the EU) a need to oversee Sweden’s national rules arose, since as a member of the EU Sweden is obligated to implement EU legislation. The aim of this thesis is to examine how Sweden has chosen to implement the ATAD 1. The directive had to be implemented no later than den 31st of December 2018 and Swedish law makers have worked actively during several years to develop the implementing legislation. This resulted in the adoption of new Swedish legislation on the 14th of June 2018. The earlier versions of Swedish legislation in the area concerning interest deductions faced criticism on several accounts, as did the proposals which lead to the recently adopted new legislation. Arguably most notably, the European Commission started an infringement procedure concerning Sweden’s rules on interest deduction limitations. It has therefore been of interest to examine whether the new legislation has addressed the previous criticism, and whether Swedish legislation in the area could still run the risk of infringing on EU law.