On 11 March 2021, the Swedish government submitted a new government bill as part of implementing ATAD 2, the Council Directive (EU) 2017/952, amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries.
Foreign legal persons are subject to limited taxation in Sweden. Such a legal person can hold interest in Swedish partnerships which, from a Swedish standpoint, are treated as transparent for tax purposes. If the partnerships only derive income from outside Sweden, this income would not be subject to tax in Sweden under the current rules.
However, it is possible that the jurisdiction in which the foreign legal person is residing classifies the Swedish partnership as opaque, i.e. a taxable entity in itself in Sweden. Such a scenario may result in the income being taxed neither in Sweden nor in the jurisdiction of the foreign legal person.
In order to avoid such reverse hybrid mismatches, the Swedish government proposes that persons who are subject to limited taxation shall be subject to tax in Sweden on income from a Swedish partnership, if
- the person is not taxed on the partnership income in its state of residence, because of the classification of the Swedish partnership in that state, and
- the person and the partnership are closely related.
The new rules are proposed to enter into force on 1 July 2021 and will be applicable on fiscal years starting later than 30 June 2021.
Our comment
The new rules will significantly change the landscape for company groups including Swedish partnerships in the structure, if the country, in which the owner of the partnership is resident, considers the partnership as a taxable entity itself. We recommend such structures to be carefully analysed.
If you have any questions or wish to discuss the rules, you are most welcome to contact us at Skeppsbron Skatt.
