Health care company Carema Care AB as well as pharmacy operators have been criticized recently for avoiding taxes by relying on a scheme whereby the firms borrow money from a parent company headquartered in a tax haven.
The Swedish subsidiaries of the company reduce their tax burden in Sweden by claiming hefty interest payment deductions stemming from “loans” from their parent companies offered at internal, often inflated, interest rates.
At a press conference on Monday, Swedish finance minister Anders Borg revealed that the government plans to examine legislation to put a stop to the practice in the spring of 2012.
The new law will make it harder for companies to take advantage of “aggressive” interest payment deductions.
According to Borg, the new proposal could come into force as early as January 2013.
“We have no view regarding what sort of owner manages a certain type of company,” he said in response to a question about whether or not international companies would be allowed to conduct profit-making operations with the help of Swedish tax money.
“However, everyone should pay their fair share of taxes,” Borg added.
The law will apply to all commercial activity in Sweden, not just companies active in the education and healthcare sectors, something which Borg anticipated may rankle some in the business community.
“There may well be a bit of a hullabaloo about this from the private sector. But we’ve concluded that something has to be done,” he said.
Elderly care minister Maria Larsson was also asked about the government’s views on whether international venture capital firms should be allowed to conduct profit-making operations with the help of Swedish tax money.
She emphasized that, in the government’s view, it’s not important what sort of company conduct any given activity, but that what matters is that the quality of the service provided is good and that the profits stay in Sweden.
“These funds, which are taxpayer money, should be used in Sweden and that will happen with this sort of preventative legislation,” said Larsson.
According to Borg, the forthcoming legislation will stop “questionable and aggressive interest rate structures” within venture capital firms.
He said the Swedish Tax Agency (Skatteverket) shouldn’t hesitate to take companies with questionable interest rate structures to court in order to determine if they violate Sweden’s laws against tax evasion.
The Confederation of Swedish Enterprise (Svenskt Näringsliv) welcomed news of the planned legislation.
“It’s positive that the government is taking action against the tax problems associated with what we’ve seen recently,” Krister Andersson, a tax expert with the organization, told the TT news agency.
Public sector employees union Kommunal remained cool to the proposal, however, arguing that, while action is welcome, the government is focusing on the wrong problem.
“The main problem is that there is too little money,” Kommunal chairperson Annelie Nordström said.
Social Democrat head Håkan Juholt argued that the government’s proposal didn’t go far enough.
“It’s become clearer that an increasing number of the market-oriented experiments within schools, care, and healthcare currently being conducted in Sweden have gone off the rails,” he said.
According to Juholt, privatization of public services is costly for citizens and called for better, national guidelines.
“After these revelations, the government is now trying to plug a few holes in an experiment which actually has a number of huge shortcomings,” he said.