Government Budget Bill for 2025: Changes to the rules on deduction of losses carried forward

According to Swedish tax legislation, the starting point is that the losses carried forward remaining from previous tax years are to be deducted without limitation. However, to counteract trading with loss-making enterprises, current provisions do in certain situations remove, or limit, the right to deduct losses carried forward in the event of changes in ownership. In the budget bill for 2025, which was submitted by the government to the parliament on 19 September 2024, a number of proposals are made to improve and simplify these rules. Setterwalls summarizes the proposals in the article below.

Increase of the amount limitation threshold

In the current tax legislation, the losses carried forward that can be deducted after a change of ownership is limited to an amount limitation threshold (Sw. beloppsspärren) which, in simple wording, corresponds to 200 percent of the acquisition costs. The government’s proposal is  to increase the threshold from 200 percent to 300 percent of the acquisition costs. A level of 300 percent means a more favorable legislation, however, according to the government, without impairing the function of the threshold to counteract trading with companies with losses carried forward to any great extent.

On a separate note, it should be mentioned that current year’s losses are not subject to any limitation rules.

Exemption from the threshold for certain acquisitions within a “non-traditional” group

The current rules provide an explicit exemption from the application of the amount limitation threshold and the group contribution limitation threshold (Sw. koncernbidragsspärren) for transactions within a corporate group as defined in the Swedish Companies Act (Sw. koncern). However, there is no similar explicit exemption from the amount limitation threshold for transactions within a “non-traditional” group, i.e. companies under the ownership or control of the same individual (Sw. oäkta koncern).

The government proposes an explicit provision to be introduced stating that the threshold shall not apply when the controlling influence over a company with losses carried forward is obtained by, inter alia, an individual, if this individual already had such influence over the company with losses carried forward through indirect ownership prior to the change in ownership. At the same time, it is mentioned that current legislation is already applied in such a way that the amount limitation threshold is exempted in the situation described.

Simplified rules when a group of individuals acquires the controlling interest

The bill also proposes rules that entail some changes and simplifications in situations where a group of individuals acquires the controlling influence over a company with losses carried forward. Under the current rules, the amount limitation threshold is triggered by the so-called herd rule (Sw. flockregeln), when certain acquirers, including individuals, “during a period of five tax years for the company with losses carried forward”;

• each has acquired shares with at least 5 percent of the votes, and
• have together acquired more than 50 percent of the voting rights in the company with losses carried forward.

For simplification reasons, the government proposes that the period during which acquisitions are to be taken into account should be reduced from five to three tax years. The relevant wording is also clarified as regards the periods and acquisitions to be taken into account.

Further, it is considered appropriate to increase the proportion of the company with losses carried forward that must be acquired by each individual. The requirement for individual acquisition is therefore increased from 5 percent to 20 percent of the voting rights. In such a situation, it appears more likely that the acquisition of the shares in the company with losses carried forward by the individuals involved may have been made with an intention of exploiting the company’s losses carried forward..

Under the current provisions, indirect acquisitions must also be taken into account if an individual directly or indirectly holds shares with at least 5 percent of the voting rights in the company that acquired the shares in the company with losses carried forward. Due to the condition of at least 5 percent of the voting rights, difficulties may arise for both the company losses carried forward and the Tax Agency in investigating and determining the changes in ownership and whether they are of the extent that the amount limitation threshold is triggered. The government therefore proposes that indirect acquisitions shall only be taken into account if someone – through direct or indirect ownership – holds more than 50 percent of the votes (corresponding to a controlling influence, Sw. bestämmande inflytande, in relevant legislation), in the company that has acquired shares in the company with losses carried forward.

It is also noted that the current provisions of the herd rule do not cover the situation where a number of individuals acquire shares in a legal entity and thereby indirectly acquire a controlling interest in a company with losses carried forward. Since other provisions on changes in the ownership of companies with losses carried forward also cover these types of indirect acquisitions, the same should apply to the herd rule. Therefore, a provision is introduced which equates the acquisition of a participation in a parent company to a company with losses carried forward.

Removal of the provision equating certain contracts with actual acquisitions

When currently applying the herd rule, agreements on the right to acquire shares in a company and the right to resolve on the company’s affairs are currently treated as actual acquisitions. Such agreements are not reflected in the company’s share register and do therefore contribute to the difficulty of applying the rules limiting utilization of tax losses carried forward in certain scenarios.

In order to give precedence to the interest of businesses in ensuring legal certainty and practical applicability, the government proposes to abolish this provision.

Adjustment of provisions on the calculation of acquisition costs in certain cases

Finally, the government proposes an added provision to the rules concerning the calculation of acquisition costs in certain cases. The proposal will make it clear that a capital contribution made to a legal entity or to a Swedish partnership which, both before and after a change of ownership, is part of the same group as a the company with losses carried forward, is to be treated as a capital contribution to the company with losses carried forward when calculating the cost of the acquisition.

Entry into force

The amendments are proposed to enter into force on 1 January 2025 and apply to changes in ownership occurring after 31 December 2024. However, with regard to the extension of the herd rule to indirect acquisitions, acquisitions of shares in the parent company of a company with losses carried forward that have taken place before 1 January 2025 shall not be taken into account.

Setterwalls’ comment

The Swedish rules limiting utilization of tax losses carried forward in certain scenarios are notoriously difficult to apply, not least for companies that continuously raise capital, or for some companies whose shares are widely traded. The simplifications are therefore urgent and welcome.

In case of any questions on how the new proposals will affect your business, please contact Setterwalls’ tax experts for advice.

This article is of a general and informative nature and is not legal advice to be used as a basis for assessment in an individual case.