Swedish review regarding the taxation of carried interest

Sweden boasts a well-established and sophisticated market for venture capital and private equity. The Swedish Government recognises the critical importance of maintaining favourable conditions for the supply of equity and active ownership to support Sweden's economic growth.

The issue of how carried interest should be taxed has been a contentious and ongoing debate in Sweden for more than 15 years, pitting the Swedish Tax Agency against fund managers and investment professionals. Despite hundreds of cases being reviewed and decided by the Swedish administrative courts, there is still a high degree of uncertainty. In many of the cases, the courts have held that carried interest should be taxed in the same way as dividends on qualified shares in closely held companies, i.e. in accordance with the so‑called 3:12 rules. However, in numerous other cases, the courts have instead sided with the Tax Agency's position, treating carried interest as income from employment.

A key reason for the ongoing uncertainty and numerous disputes is that Sweden currently lacks specific rules governing the taxation of income in the form of carried interest. As a result, each case must be individually assessed based on the specific fund structure, the investment professionals' investment framework, and the method of paying carried interest.

To bring greater clarity and consistency to this area, the investigator has been tasked with the following:

• analyse how taxation of income which is derived from carried interest can become more predictable for individuals and propose rules that will allow for similar taxation as for qualified shares (Sw. kvalificerade andelar) held in closely held companies (Sw. fåmansbolag);
• when designing the proposed rules, particularly considering the importance of predictability to promote the growth and competition of Swedish companies;
• especially consider possible circumventions when designing the proposed rules, and
• submit the necessary legislative changes and proposals.

The assignment can be read here. The review is expected to be presented no later than on 20 January 2025. Schjødt's tax lawyers are closely monitoring the development.

For any questions regarding the taxation of carried interest, please feel free to contact any of the Schjødt tax lawyers.