Proposal regarding a top-up tax act to ensure minimum taxation

On Tuesday 7 February 2023, the committee under the Swedish Ministry of Finance tasked with submitting a proposal on how to implement the EU minimum tax directive published its official report (SOU 2023:6) with a first draft of a new act on additional tax for companies in large groups.

The committee's task has been to propose rules that implement into Swedish law, the Council Directive (EU) 2022/2523 (the minimum tax directive), which shall ensure a global minimum tax level for multinational enterprise groups and certain large‑scale domestic groups. The aim is to ensure that the business income of such groups is taxed at a minimum rate of 15%. The rules are set to apply to entities located in a Member State, where the group has an annual revenue of at least EUR 750 million.

The committee proposes that the rules of the minimum tax directive are implemented through a new act – the “Top‑Up Tax Act”. The central provisions of the draft act are those on computing the top‑up tax amount and the rules on who is to pay top‑up tax. In short, the top‑up tax shall be computed by comparing a group's total qualifying business income and tax expenses in each jurisdiction with the minimum tax rate. The responsibility for payment of an entity’s top‑up tax amount shall generally lie as high up as possible in a group's ownership chain (the Income Inclusion Rule, “IIR”). Where the IIR cannot be applied, all constituent entities in a group shall share the responsibility for paying top‑up tax (the Undertaxed Profit Rule, “UTPR”). The draft act also includes a domestic top‑up tax system where the Swedish entity that is highest in the ownership chain must pay top‑up tax attributable to Swedish entities in the group. Further, the draft act introduces an obligation to submit top‑up tax reports. The obligation to submit such reports shall rest with each constituent entity, but rules will allow for joint reporting within a group.

According to the committee's estimation, there are 124 groups where the ultimate parent entity is located in Sweden and the revenue threshold is met, and 4,000 Swedish entities in such groups. The number of Swedish entities belonging to groups where the ultimate parent entity is located outside of Sweden is estimated to 8,000. While the effects of the top‑up tax on Sweden's public finances are uncertain, the report notes that the additional administrative costs for enterprises will be high, particularly in the initial phase when developing the necessary systems and know‑how.

The minimum tax directive is set to be implemented into domestic law by 2024. With reference to the complex nature of the legislative proposal and the short time frame for preparing the report, the committee stresses that there is a significant risk of deficiencies in the proposal and that the need for a robust referral procedure cannot be underestimated. Several additions and amendments are likely to be expected before a final legislative proposal is presented.

Schjødt's tax lawyers are following the continuous development closely.