Increased transparency in Sweden for groups’ income tax information through public income tax reports
On February 9, 2023, a legal council referral was published to increase transparency for large groups and companies. The main content of the referral concerns the adoption of the EU directive regarding public country-by-country reporting that aims to increase the transparency of companies and give citizens the opportunity to review companies’ income tax information. Citizens shall thus be able to assess how multinational companies contribute to the welfare in each jurisdiction.
The new legislation is intended to be applied for financial years beginning after May 31, 2024. The first year covered by the new legislation will therefore be – for companies with calendar year as accounting year – 2025 (which must be published and submitted no later than 31 December 2026).
In order to implement the directive, it is proposed that a new law should be incorporated in Sweden. The referral is briefly described below.
If you want to read our previous articles about the directive we recommend the following links:
- Public country-by-country reporting is introduced within the EU – Skeppsbron Skatt
- Agreement reached within the EU concerning public country by country reporting – Skeppsbron Skatt
Overview
The incorporation of the EU directive requires large, multinational groups and companies to publicly publish certain income tax information. We have listed the most important parts of the proposed legislation below:
- The law is intended to be applicable to groups and companies with annual revenues exceeding SEK 8 billion in the last two financial years.
- The income tax report must be submitted annually to the Swedish Companies Registration Office in a report, and the report must also be available on the company’s website.
- The income tax report must contain information about, among other things, the business operations, number of employees, income, profits or losses, and income tax paid.
- In addition, the auditor in companies that are categorized as larger companies according to the Swedish Annual Accounts Act must state in the audit report whether the company is obliged to publish an income tax report and whether the company has done so.
The new legislation is intended to enter into force on June 22, 2023, and will be applied for financial years beginning after May 31, 2024.
The first year covered by the new legislation will therefore be – for companies with calendar year as accounting year – 2025 (which must be published and submitted no later than 31 December 2026).
Companies concerned by the new legislation
Those covered by the referral are groups that have, in each of the last two financial years, revenues that amount to more than SEK 8 billion. Companies that are not part of a group are also affected if the company is also a taxpayer in at least one other state or tax jurisdiction than Sweden due to operations conducted from a permanent establishment there.
In general, the ultimate parent company in a group must prepare and publish the income tax report. However, there are situations when subsidiaries and branches are required to prepare the income tax report. There are also exceptions to the obligation to report for certain credit institutions, securities companies and financial holding companies.
Content of the income tax report
An income tax report must contain information about, among other things, the company’s or the group’s operations, number of employees, income, profits or losses, and income tax paid. The report must be prepared using the form and format established by the European Commission.
The information in the income tax report must be reported separately for different tax jurisdictions.
It is also possible to temporarily omit certain information from the income tax report if the publication of the information would seriously damage the market position of the companies to which the report refers. If certain information is omitted, the reasons behind it must be stated in the report.
Publication of the income tax report
The income tax report must be made public by submitting it in Swedish to the Swedish Companies Registration Office no later than one year after the end of the financial year. One year after the end of the financial year, it must also be made available to the public, free of charge, on the company’s website in at least one of the official languages of the EU. The report must remain available on the website for at least five years.
Penalty
If a company does not submit the income tax report, the Swedish Companies Registration Office may order the person who is obliged to submit the report to fulfill his or her obligation. The injunction may be combined with a fine.
The income tax reports link to the already incorporated country-by-country reporting requirements
For groups that already prepare country-by-country reporting (also known as CBCR), the obligation to prepare an income tax report is highly similar to the CBCR submitted annually to the Swedish Tax Agency, with the difference that the CBCR is not public.
Companies that need to prepare a CBCR can use the same information in the income tax report. According to the legal council referral, any cost increases that the new reporting requirements may inquire should be limited.
The provisions of the EU directive also have a certain connection with the Swedish accounting legislation, but the information in the income tax report shall not be included in the annual report.
Our comment
The new legislation will be applied for fiscal years beginning after May 31, 2024. For companies with calendar year as their accounting year, the first report, which relates to 2025, must therefore be published by 31 December 2026 at the latest. Even though it is a few years until the first report shall be published, we recommend that companies and groups analyzes whether they will be covered by the reporting obligation and if they are able to extract the data and information that is requested in order to fulfill their reporting obligation within the time frame.
The new law means that affected companies must review their procedures and manage any risks that may arise. Risks may be related to compliance issues, if there is a risk that competitiveness could be affected, if confidential business information may be disclosed or if any information may damage the company’s reputation through misinterpretation of the information published.
If you have questions about how this new legislation will affect you, what you need to do as a company or if you want to review any PR risks that may arise from the publication, you are welcome to contact us at Skeppsbron Skatt.
