Proposal for amended interest deduction limitation rules

According to the committee, the general interest deduction limitation rules, i.e., the EBITDA limitation, have not had a significant effect on Swedish companies' borrowing activities. It is noted, however, that the rules seem to have given rise to a certain strategic behaviour, evidenced by many companies' negative net interest corresponding to 30% of the deduction base, i.e., the limit for allowable deduction. 

The committee proposes several changes to the current interest deduction limitation rules, some of the more notable being:

1. The definition of interest, for the purpose of the interest deduction limitation rules, is proposed remain unchanged. However, there is a proposed clarification regarding what should be considered interest for companies whose business involves acquiring and managing portfolios of credit-impaired receivables. This clarification should be aligned with Swedish GAAP.
    
2. A new system is proposed for calculating the maximum allowable interest deduction within a group. This system would allow companies that can exchange group contributions (Sw. koncernbidrag) to apply a group-wide calculation of net interest and the deduction basis.
    
3. It is proposed to abolish the six-year limit for carrying forward negative net interest. Under this proposal, negative net interest can be carried forward indefinitely, provided there is no change of control. 
    
4. The safe harbour rule (Sw. förenklingsregeln), allowing a company – and its community of interest – to deduct a minimum of SEK 5,000,000 without having to regard the EBITDA calculation limit, is proposed to be increased to a total of SEK 25,000,000.
    
5. All companies within a community of interest must apply the same rule, either the EBITDA-based rule or the safe harbour rule. 
    
6. Certain additional amendments are introduced to align the current rules with recent case law, first and foremost the case EU case C‑484/19, Lexel. This means that situations where the so-called "exemption rule" (Sw. undantagsregeln) should not be applied due to it being contrary to the freedom of establishment, should be removed from the legal text. Instead, a special rule should apply where deduction is denied if the debt or underlying transaction is considered artificial, for the purpose of giving the community of interest a significant tax benefit.
    
7. A proposed prohibition for interest expenses on intra-group debt related to the internal acquisition of shares, with two exceptions:
   i)   the internal acquisition is directly related to and caused by an external acquisition, or
   ii)  the debt has been incurred as part of an intra-group restructuring in preparation for an external share sale.
    

The proposed amendments are set to take effect on 1 January 2026, with special provisions for handling negative net interest carried forward from previous years and with a suggestion to finance the increased interest deductibility with an increased corporate tax rate. The committee's proposal is sent out for consultation. Schjødt's tax lawyers are following the continuous development closely.