Swedish tax authority’s campaign against private equity companies

Swedish tax authority’s campaign against private equity companies has no legal basis. The tax crusade against venture capitalists violate applicable law and is a major social economic threats, writes Professor Sven-Olof Lodin, Professor of Finance Law at the University of Stockholm.

After an audit of the venture capital industry the Swedish tax authorities chose to raise tax assessment for numerous venture capitalists. For example, 34 key people at Swedish private equity firms IK Invest and Nordic Capital got raised tax assessment with a total of 2.6 billion SEK.

The actions are now criticized now by Professor Sven-Olof Lodin that in DN (Dagens Nyhter) Debate writes that tax authorities acted in violation of applicable laws.

Focus of the tax audits has been private equity company’s taxation of so-called “carried interest”; this regards profit sharing among company directors and key employees following successful company sales.

Sven-Olof Lodin writes that in his opinion this compensation that tax authorities have raise tax assessment on should not be considered as “carried interest”, and believes that the tax authorities deviates from the economic and legal reality that the tax appraisals are bound by.

The Swedish tax authority’s actions make it “almost impossible in the future to engage in venture capital activities in Sweden,” says Lodin.

According to him, private equity funds contribute with 30 percent of all foreign capital invested annually in Sweden. Therefore the issue of taxation of venture capitalists incomes is not only of interest to tax experts, but also of “great economic importance” for Sweden writes Sven-Olof Lodin.