SVCA to appeal Swedish carried interest ruling

Sweden’s PE industry body wants to quash a ruling that leaves the country’s firms facing a tax bill of €202 million.

The Swedish private equity association is appealing against a court ruling that carried interest should be taxed as income, not capital gains, and the rules backdated to 2005.

The SVCA wants the country’s highest court, the Supreme Court of Appeal, to make a final ruling on the matter, Elisabeth Ringqvist, chairman of the association, told pfm.

“Most in the industry want to pursue the claim and it’ll be four to six months until we know if we have a case,” Ringqvist said.

The Stockholm Court of Appeal’s Friday ruling, and its retroactivity, was a surprise to the SVCA and its members because it is not in keeping with the workings of the Swedish tax system, she added.

Swedish tax authorities can typically only backdate additional tax payments by the past two years. In cases where there is evidence of criminality, a claim can be backdated five years.

“As far as we are aware all private equity firms in Sweden have been transparent in their record keeping, yet most will be subject to the ‘penalty tax’” Ringqvist said.

The tax authorities estimate private equity employees will face a SKr 2.3 billion ($261 million: €202 million) tax bill as a result of the ruling.

This will not become payable until a decision on whether or not the high court will hear the appeal is made, or later in the event the case will be heard, Ringqvist said.

The tax authority argues that because payments are partly based on performance they can be regarded as salary.