Sweden clamps down on venture capitalists

Sweden clamps down on venture capitalists
A tax hike for a high-profile firm of Swedish venture capitalists has financial observers worried that the recent focus on their income could cause bad blood among investors.

Swedish business daily Dagens Industri (DI) reported on Tuesday that the company Altor will have to pay half a billion kronor ($75.9 billion) more in taxes, after a review by the Tax Agency (Skatteverket). Altor is one of about ten private equity firms facing similar reviews.

The agency has sent Altor a “review memo” (granskningspromemoria) in which it details how it sees the structure of the company. While the company itself can expect an additional tax bill, DI reported that the add-ons will also likely affect about ten individuals working for the company.

The key issue at stake is how to dole out income when a company in the firm’s portfolio is sold at a profit.

“We are convinced that there is no legal grounds to reclassify capital income to a salary in the way the Tax Agency wants to,” Altor CEO Stefan Linder told the newspaper.

The editorial page, meanwhile, noted there had long been a rift between how venture capitalist are perceived in Sweden and how they perceive themselves.

“Misunderstood and abused, or greedy and clumsy?” editorial writer Torun Nilsson began her analysis, noting that a recent televised debate about private investments in the state-funded school system had turned somewhat sour and preachy.

The issue is also set to heat up as Sweden inches ever closer to the 2014 general elections, in which voices from all points on the political spectrum have expressed reticence about tax payers’ kronor ending up in tax havens.

The issue has hammered an even deeper wedge in between the Trade Union Confederation (LO), which wants to curtail profits, and their traditional but less firebrand allies, the opposition Social Democrat party.

A certain social friction between traditional versus reformist attitudes in Sweden has also caused tension.

“The venture capitalists have propagated the conflict between the Swedish anti-capitalist pursuit of equality and the modern cost-saving society,” Nilsson noted, before adding that several venture capitalists had begun to thaw in their positions, including Altor.

Not only had the firm become friendlier to journalists, she noted, but as late as last week took to the debate pages of Dagens Nyheter, Sweden’s biggest paper, to argue it was time for an ethics code for the industry, which took root in Sweden in the 1980s.

“We must develop demands on business morality in private equity companies, especially when it comes to ownership in tax-funded sectors such as health care, schools and the care sector,” Altor said in the op-ed along with five other venture capitalists.

The op-ed also underlined, however, that these institutional investors were important to the Swedish economy.

“We play an important role both as active owners and as buyers and developers of companies when big business, family firms or the state want to sell their companies,” the authors noted.

“Our ownership model also plays an important role in importing capital to Sweden.”

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