Swedes are liable to pay capital gains tax on the profits they make when they sell their house or apartment, but they are granted tax relief if the sales proceeds are spent on buying a new property in Sweden, effectively postponing the day that they pay the tax.
The European Commision says that this rule hinders the free movement of labour in the EU, as people selling a property in Sweden in order to buy a property elsewhere in the EU do not qualify for tax relief.
The commission says it “considers that the tax break should be applied in a non-discriminatory way to all Swedish taxpayers, irrespective of whether they purchase a house in Sweden or in another member state.”
Sweden argues that the rules are needed to prevent cross-border tax evasion. The rule ensures that the tax on property owners’ final properties is actually collected.
If the government were to abolish the system for postponing property taxes it would have major consequences for the housing market, with reduced mobility and lower property prices.
Scrapping the rule that a property has to be situated in Sweden to qualify for the postponement would mean reduced tax income in the long term.
The government is arguing that the current system should remain, and is hoping to find a system that will satisfy both sides. It has made a number of submissions to the commission, the latest of which was kept secret from the press – a sign of the subject’s sensitivity.
The case in the European court is likely to take around two years, and there could be a delay before the commission hands in its complaint to the court authorities. This could give time for Sweden and the commission to come to an agreement before the court gets involved.