No risk, no carry? Swedish and Norwegian courts put carried interest to the test

The legal frameworks differ, neither decision is final, and both concern distinctive facts. Yet they raise a common practical question: does the entity receiving the carried interest income bear the economic risk and make the contribution said to justify its return? Below, we examine the decisions and their implications for existing and future structures.

In nine parallel decisions, the Administrative Court in Stockholm has reclassified carried interest from two EQT funds as employment income for the EQT employees who ultimately owned the carry vehicle. 

The decisions show that scrutiny of carried interest continues after the Supreme Administrative Court's ruling in HFD 2025 ref. 40, with the focus now on the investment’s terms and economic substance rather than the holding structure alone.

The carried interest shares were held by a Guernsey company acting as Special Limited Partner (SLP), ultimately owned by EQT employees through a stack of holding companies. EQT Holding Guernsey II Ltd (Guernsey II) was the entity investing in SLP.

The court held that, although Guernsey II had made a contractual commitment, the first capital contribution was not made until July 2014, a few years after the fund’s first acquisition in September 2011. During this initial period, SLP’s activities had been financed by other means, which the court considered most likely to have been funding provided by the GP, which controlled SLP and had unlimited liability for its obligations.

By the time Guernsey II made the first capital contribution, the value of the fund’s assets had already increased above their acquisition cost. The court therefore considered that Guernsey II had obtained exposure to the upside in the fund without having borne the corresponding capital risk during the initial investment period. According to the court, the arrangement was most likely structured so that part of the fund’s profits would accrue to certain EQT employees by reason of their employment and work performed for the advisory company.

On this basis, the court found that there had been an improper transfer of income. Once such an improper transfer had been established, the court considered it irrelevant whether the allocation was also motivated for tax purposes.

Tax penalties were imposed in all cases, but reduced by half due to the protracted handling of the cases and the complexity of the questions involved.

Swedish carried interest litigation has long focused on the 3:12 rules for closely held companies and whether individuals were significantly active in the relevant businesses. HFD 2025 ref. 40 provided long-awaited clarification by recognising the carried interest in that case as a return on investment. Drawing a parallel with Swedish limited partnerships, HFD held that agreed profit allocations are generally respected unless they involve an improper transfer of income or appear unreasonable and essentially motivated by tax considerations.

The recent decisions focus on whether the investment underlying the carried interest shares involved genuine economic risk while value was being created. On the facts, the court did not regard the contractual commitment as sufficient evidence of that exposure. In our view, however, a capital commitment funded by interim financing on arm's length terms is capable of carrying genuine economic risk, and the decisions should not be read as establishing otherwise. Such an approach would be at odds with the fundamental principles of financial markets, where debt financing is a standard feature of commercial transactions.

The court did not hold that carried interest is inherently remuneration for work or that a separate carry vehicle is objectionable in itself. The principles set out in the 2025 ruling remain the starting point. Sponsors should nevertheless review the timing and terms of capital contributions, the existence of interim financing and interest accruing thereon, the valuation on entry and the evidence of who bore the downside during the investment period. The focus should be on the substance of the financial risk, not simply whether capital was paid at first close.

We expect the decisions to be appealed on several grounds, including technical ones.

On 12 October 2026, Oslo District Court upheld the Tax Administration’s reassessment of carried interest received by a holding company in the Union group (Union Eiendomskapital Lux AS v. the State). The court reattributed the carried interest to the group's fund manager and taxed it as business income. It also upheld a 20% penalty tax. The decision is not final and may be appealed.

The court applied the Supreme Court’s framework in Herkules (Rt-2015-1260): the parties’ private-law arrangements are the starting point, but the recipient’s actual contribution must justify the carried interest. The outcome turned on the particular role of a holding company introduced after the original investment.

In 2015, Partners Group acquired 98% of Norwegian Lights AS, which held a fully invested property portfolio. Union co-invested approximately NOK 18.5 million for the remaining 2%, through B-shares carrying an entitlement to 15–20% of distributions above agreed return hurdles. The manager, Union Eiendomskapital Lux AS, initially held the B-shares and entered into the shareholders’ and management agreements. It also received a management fee of 1.5% of NAV and separate disposal fees.

Following an internal restructuring in 2017, NLAS Holding AS held 1.73% of the shares and received the carry, including the carry attributable to another Union entity’s 0.27% stake. NLAS Holding AS had no activity beyond holding the shares and was not party to the original agreements. It treated the distributions received in 2018, 2020 and 2021 as exempt under the participation exemption. The reassessment increased the manager’s taxable income by NOK 88 million, resulting in additional tax of NOK 19.4 million and a penalty of NOK 3.9 million.

Union argued that the carried interest was a return on invested capital under a commercial agreement negotiated with an independent counterparty, that the B-shares were illiquid and risky, and that the fund’s success was due to market timing and falling interest rates rather than the manager’s efforts – for which the manager was in any event separately remunerated. 

The court instead asked whether the holding company had made a contribution justifying the disproportionate return. It emphasised the company’s late entry to a fully invested portfolio and its passive role, the manager’s responsibility for exit decisions, and the fact that another co-investor received no carried interest directly. Common ultimate ownership also reduced the weight placed on the independently negotiated terms, since the external investor was indifferent to which Union entity received the carry.

The court treated the carried interest as part of the overall remuneration for Union’s role as manager and co-investor and attributed it to the manager. Because the manager did not hold the shares in the relevant years, the income was taxable as business income. The court distinguished Herkules, where the GP itself made investment decisions and the structure had a genuine commercial rationale.

The 20% penalty was upheld despite disclosure of the arrangement in the holding company’s tax returns. Disclosure obligations attach to each taxpayer: another group company’s disclosure did not discharge the manager’s own duty. Where attribution is uncertain, each potentially affected entity should address the issue in its own return.

The decision should not be read as a general challenge to carried interest structures. Its facts differ materially from the typical Norwegian carry structure, where a dedicated carry vehicle is established before the fund, bears the fund’s establishment costs and risk, commits its own capital, sits behind the investors in the waterfall, and where the manager is remunerated separately through a management fee and a performance-based success fee. In such structures the carry vehicle makes a real contribution of its own, and the economic asymmetry reflects risk actually borne. The Union structure lacked these elements: the carry vehicle was only inserted in 2017, more than two years after the fund was established and the agreements entered into, took no establishment or investment risk beyond a minority co-investment in a fully invested portfolio, and performed no function.

At the same time, the decision is a reminder that the tax authorities and the courts will look through formal agreements to the functional reality, and that structures with identical ultimate owners will be scrutinised closely. 

While the Swedish lower court asks whether the agreed allocation improperly transfers income from the entity that earned it to another entity, Norway asks whether the entity receiving the income has itself made a contribution capable of justifying that return. Those are different legal tests. But for fund sponsors, they invite much the same factual enquiry:

• Who committed the capital?
• When was the capital actually put at risk?
• Which entity bore the downside?
• Which entity performed the functions associated with generating the return?
• Was the carry recipient part of the structure from inception?
• Is the commercial rationale documented contemporaneously?

The practical message is that the entitlement to carried interest by the receiving entity should be supported by its own investment, risk and commercial role. A contractual right may be vulnerable where the recipient entered after value had accrued or cannot substantiate the contribution said to justify its return.

Neither decision is a general rejection of Nordic carry structures. Both are a reminder to establish and document the commercial substance when the arrangements are put in place, rather than seek to reconstruct it during a tax audit.

Schjødt’s Tax and Asset Management & Investment Funds teams have extensive experience advising on the structuring and taxation of carried interest across the Nordic markets. If you would like to discuss how these developments may affect your existing or planned carry structures, please contact us or your usual Schjødt contact.