Legal Update: Tax Increase for Financial Institutions
9 November 2016
On November 7th, 2016, an official report was published containing a proposal to introduce a 15 % tax for financial institutions (broadly defined and including branches of foreign financial institutions with employees in Sweden) based on, simplified, the costs of salaries related to financial services that are exempt from value added tax ("VAT"). The proposal will now be referred to stakeholders for consultation before a final version is handed to Parliament for voting. Hence, there may be some changes to the current proposal before new rules are enacted. The new rules are proposed to enter into force on January 1st, 2018.
The proposal aims to reduce the advantages for the services exempt from VAT, an advantage that has been estimated to EUR 1,9 billion for 2018. It may be noted that, according to the report, a 40% tax would be needed to fully correct this advantage. However, a total elimination of the benefit would also create unwanted distortions and the report therefore advised against it. The current proposal is expected to raise approximately EUR 0,4-0,7 billion in the short term.
The first reaction to the proposal from the financial sector was somewhat negative, and it remains to be seen if it will survive in its current form. However, we would expect that there is strong political support for imposing the tax. In this context it may also be noted that the proposal is modelled after a similar tax already in force in Denmark.
As the tax is proposed to be introduced January 1st, 2018 and could lead to a large administrative and financial burden, it would be wise for companies likely to be affected to already now start considering how the rules will impact their situation.
Financial institutions may also want to consider the discussion around the financial transaction tax ("FTT") discussed within the European Union. This may impose an additional burden for certain financial institutions that are within its scope. However, since Sweden has opted out of further cooperation around the FTT, the impact may be limited.
Please feel free to contact Christian Carneborn with questions regarding the current or proposed rules.