Inquiry into the taxation of carried interest

On August 6, 2024, the government appointed an inquiry into the taxation of carried interest. The inquiry follows media attention regarding the unpredictable tax situation for private equity in Sweden, with the objective of designing provisions that provide a more predictable taxation of the income.

The background to the investigation is that there are no special taxation rules regarding carried interest in Sweden. Instead, taxation follows general rules which have not been well-adapted to the complex structures often used by private equity funds. This has led to a great deal of uncertainty and a large number of tax proceedings over more than 15 years, which has been costly and time-consuming for the Swedish Tax Agency, the courts and taxpayers. The government also notes that the uncertainty risks affecting the competitiveness of the Swedish private equity industry and access to capital and expertise for Swedish companies.

The investigator is tasked with analyzing how the taxation of income derived from carried interest can be made more predictable for individuals who are active in the private equity industry and propose provisions that make it possible to achieve taxation equivalent to that of qualifying shares in closely held companies. The results of the inquiry shall be reported no later than 20 January 2025.

Setterwalls’ comment

It is welcome and urgent that the government acts to create predictable rules for the private equity industry in Sweden. Given the short timeframe for the inquiry and the clear directive that taxation should correspond to the taxation of qualified shares in closely held companies, we believe that the results of the inquiry will largely be based on the previous legislative proposal that was developed but never implemented in 2012. Even then, taxation equivalent to that applicable to closely held companies was proposed, and no social security contributions was to be payable on dividends and capital gains that were taxed as income from employment under the intended rules. The risk of social security contributions has been a central issue for private equity companies with Swedish business, so a similar solution would likely be warmly welcomed by the industry.