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Sweden Legislative Proposal Amending CFC Rules to Comply with EU Anti-Tax Avoidance Directive

Sweden's government has announced a legislative proposal to amend the country's controlled foreign company (CFC) rules to comply with the EU Anti-Tax Avoidance Directive (ATAD1). In general, the Swedish government considers that the main aspects of Sweden's CFC rules are already compliant with the Directive, including the 25% ownership threshold and the low-tax threshold of 55% of the Swedish rate, although certain important amendments are included in the legislative proposal.

One of the main amendments is a new whitelist of jurisdictions where income is automatically considered not to be low-taxed for the purpose of applying the CFC rules. Of particular note, is that Malta would be excluded from the list, and therefore the income of a CFC in Malta may be continuously taxed in Sweden unless the company is a genuine establishment conducting commercially motivated operations. Further, royalties and other income from intellectual property rights are integrated in the rules to provide that such income is excluded from the whitelist exemption for several countries, including France, Greece, Ireland, Italy, and others.

Aside from the whitelist amendments, another important amendment is a reduction in the ownership/control percentage from 50% to 25% to determine whether persons are associated for the purpose of the CFC rules. Other amendments include new rules for the avoidance of double taxation in respect of subsequent dividends from a CFC and capital gains on CFC shares, and new security reserve provisions for non-life insurance companies.

Subject to approval, the amended CFC rules are to enter into force on 1 January 2019 and apply to tax years beginning after the end of 2018.

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