Court ruling could cost state billions

A recent Administrative Court ruling in a corporate tax case could reduce Swedish government coffers by up to 60 billion kronor annually.

The much watched case involves investment company Industrivärden, which won a judgment allowing it to reduce its tax burden by counting interest deductions from newly created subsidiaries against company profits.

“Corporate tax basically becomes voluntary,” said Jan-Erik Bäckman, an analyst with Skatteverket.

“According to our analyses the state treasury already loses 10 billion kronor a year in corporate taxes. The nightmare scenario is that this figure climbs up to 60 billion kronor when large companies begin to apply this method.”

Today, corporate taxes bring nearly 100 billion kronor a year into the government treasury, with 60% of the total paid by companies with more than 100 employees.

According to Skatteverket, such internal corporate transactions have no business purpose. They don’t constitute a purchase to broaden or deepen a company’s activities, but are simply carried out to evade taxes.

“We thought that the tax avoidance clause would be used in this instance, but the Administrative Court ruled that [Industrivärden’s approach] was a legal construction,” said Bäckman.

Finance minister Anders Borg was not available for comment on Christmas Eve, but his press secretary Anna Charlotta responded that the government is monitoring the situation.

“It is important that laws are followed and that people avoid tax fraud. The government is following developments in this regard and if it appears that there is a need for a change in the rules we will look into the matter further,” she said.

Meanwhile, Social Democrats put pressure on Borg to explain how the government plans to make up for the lost revenue.

“It is rather hard to believe that the current legislation can deprive us of 60 billion kronor. We have to get to the bottom of this,” said Lars Johansson, vice chairman in the Riksdagen’s tax policy committee.

The committee has invited Borg to a meeting January 29th to discuss tax fraud.