Corporate Tax

New legislation immediately in force as of today, February 13, 2009 – loans from foreign companies to individuals may be taxed as employment income in Sweden

The new rules imply that cash loans from certain foreign companies to certain individuals are to be taxed in the hands of the recipient under the Swedish rules on prohibition against loans to related parties (Sw: låneförbudsreglerna).

Yesterday (February 12), the Swedish Government sent an official letter to the Swedish Parliament about a proposed Bill to expand the Swedish tax rules on prohibition against loans to related parties. According to the letter, the proposed rules would also include loans from foreign companies and would be in force as of today, February 13, 2009.

Under current tax rules, the recipient of loans from Swedish companies is taxed if the loan is in violation of the Swedish rules on prohibition against loans to related parties under the Swedish Companies Act. If the recipient is an individual, the loan amount is considered as employment income. If the recipient is a limited liability company, the loan amount is considered as business income.

If the recipient is a Swedish partnership, the partners are taxed respectively. The proposed amendments will also imply taxation of the partners in a partnership which, through the holding of one or several partnerships, holds a partnership that has received a forbidden loan.

The Swedish Government also announced that the current right to deduct interest on such taxable loans is abolished. This applies to both Swedish and foreign loans.

The new rules are proposed to apply to loans given on or after February 13, 2009.

The abolishment of the deductibility of interest also applies to loans given prior to February 13, 2009. However, interest payments made prior to February 13, 2009 are not covered by the new rules.

Agneta Hedlund, 08-723 91 57 agneta.hedlund@kpmg.se

[2009-02-13]

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