Proposal for improved interest deduction rules for companies and adaptations to EU law

On 12 June, the Council on Legislation gave the green light to the Swedish Government’s proposal for new rules for companies’ interest deductions. The proposal is based on the Committee’s conclusion in SOU 2024:37 “Improved interest deduction rules for companies”, which was presented in May 2024 and was circulated for consultation last autumn. The proposed legislative amendments entail several significant improvements for companies, including an increase in the amount limit in the safe harbour rule and the abolition of the time limit for remaining negative net interest income. On 30 September, a final proposal was submitted to the Riksdag regarding the targeted interest deduction limitations and adaptations to EU law. The other proposals are still being prepared by the Government. All rules are proposed to enter into force on 1 January 2026. In this article, Setterwalls highlights some of the most central changes in comparison to today’s regulations.

The interest deduction rules aim to prevent tax planning through excessive interest deductions, especially within company groups. The rules limit the possibility of deducting negative net interest income from taxation, which means that companies cannot freely reduce their taxable profit by increasing their interest expenses.

The targeted interest deduction limitations

The targeted interest deduction limitation rules, which limit the right to deduct interest expenses on certain debts to affiliated companies, are proposed in the proposal submitted to the Riksdag on 30 September to be adapted to be compatible with EU law. Interest deductions shall not be allowed in situations where interest expenses are paid to companies within the EEA and where the arrangement is artificial with the aim of obtaining a substantial tax advantage for the affiliated companies. Existing limitation rules will continue to apply to debt between Swedish companies and debt between a Swedish company and a company outside the EEA.

The Government’s proposal corresponds to that in the Council on Legislation’s referral, but is not fully in accordance with the proposal initially presented by the Committee. The Committee proposed, among other things, an explicit regulation of the Tax Agency’s burden of proof for the above-mentioned artificial arrangement and a special limitation rule between Swedish companies and companies within the EEA, including the examination of a fictitious group contribution right. Furthermore, the Committee proposed an amendment to the acquisition rule, i.e. the right to deduct interest for debts between affiliated companies when acquiring shareholder rights.

The legislative amendments are proposed to enter into force on 1 January 2026.

Deduction for negative net interest income (the general interest deduction limitations)

Joint calculation and set-off for company groups

One of the most central changes in the proposal regarding the general limitations on interest deductions that has not yet been submitted in a final proposal to the Riksdag is the introduction of a joint calculation and set-off of deduction bases and net interest income for companies that can make or receive group contributions between each other during the tax year (one calculation unit). This means that all companies in the calculation unit must add up their positive and negative accumulated net interest income and deduction basis, which provides a common deduction scope for the entire calculation unit. If a company within a calculation unit uses the general rule, all other enterprises in the same calculation unit must also apply this rule. Companies that only have the right to group contributions due to an exemption are excluded from the calculation unit. Partnerships are not covered by the system.

In the current regulatory framework, the calculation of deduction bases and net interest income is mainly for each individual company, and the possibilities for group equalisation are limited and technically complicated. The new system simplifies and improves neutrality between groups and individual companies.

Increased amount limit for the safe harbour rule

The amount limit in the safe harbour rule is proposed to be increased from SEK 5 million to SEK 25 million. This means that companies and groups can deduct negative net interest income and remaining negative net interest income, which has not been deducted by set-off, up to SEK 25 million without having to apply the main rule. This will reduce the administrative burden, especially for SMEs, and allow more companies to avoid the more complex rule.

Abolished time limit for utilisation of remaining negative net interest income

Another important change is that the time limit for deducting remaining negative net interest income is proposed to be removed completely. Under the current regulatory framework, such net interest income may only be rolled forward for a limited period of time (six years), which has created uncertainty and a need for planning. With the proposal, negative net interest income can be rolled forward without a time limit.

Simplified order of precedence in the calculation of deduction basis

According to the Government’s proposal, the deduction basis shall be calculated without regard to group contributions made and received, as well as deductions for previous years’ deficits. This means that group contributions and loss carry-forwards are handled after the interest deduction limit, which simplifies the calculation. In the current regulations, group contributions and deficits directly affect the calculation of the deduction basis, which has led to complicated rules of priority and increased administration.

Obligation to provide information and tax surcharges

It is proposed to introduce an annual mandatory determination procedure for remaining negative net interest income. Companies in a calculation unit must provide information on all companies in the unit and the information required for the joint calculation. If incorrect information is provided that leads to an incorrectly determined residual negative net interest income, a tax surcharge of one sixth of the incorrect amount is calculated.

Differences between the proposal by the Committee and the Government’s proposal

Compared with the initial Committee proposal, certain adjustments have been made to the proposal, which has been reviewed by the Council on Legislation. Among other things, the Government has chosen to retain the possibility for affiliated companies to choose between the main rule and the safe harbour rule, instead of requiring all affiliated companies to apply the same rule. The Government has also chosen not to proceed with certain proposals for special exemptions, for example for infrastructure projects, but these issues are being further prepared.

Setterwalls’ comment

Setterwalls welcomes the proposed simplifications compared to the current rules. Group equalisation will be more efficient and fair, and the administrative burden should be reduced for most companies. The abolition of the time limit for remaining negative net interest income and the increased amount limit in the safe harbour rule means that more companies can take advantage of deduction opportunities without having to deal with complicated rules and risk losing the right to deduct due to time consumption. At the same time, the introduction of one calculation unit, combined with the annual verification procedure, will require a shift towards greater coordination. We also note a potential problem with the changes to the targeted interest deduction limitation rules, as it is not entirely clear what is to be considered an artificial arrangement.

All new rules are proposed to enter into force on 1 January 2026 and apply to tax years beginning after 31 December 2025. The next step in the legislative process is now for the Government to produce a final proposal also regarding the general interest deduction limitations. Such a proposal, as well as the already presented proposal on the targeted deduction limitations, will then be discussed and decided on in the Riksdag.

Are you wondering how the proposed changes to the interest deduction restrictions may affect your business? Welcome to contact Setterwalls’ tax experts if you have any concerns or want to discuss the proposal and the deduction rules. We have extensive experience in assisting companies with proactive advice on corporate taxation.

The content is a general account of an informative nature and is not legal advice on which to base an assessment in an individual case.