Newsletter

Proposal for amended interest deduction limitation rules

by Victor Elovsson and Ebba Perman Borg

Published:

Crowd

In 2021, the Swedish Government constituted a committee with the objective of reviewing the effects of the interest deduction limitation rules introduced in 2019, and to assess whether there is need for amendments. The review (SOU 2024:37) was finally published on 31 May 2024.

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. 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.
     

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.

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