Sweden Signals Corporate Tax Cuts After Capping Deductions

Sweden signaled it may lower the overall corporate tax rate by 2 percentage points as it capped deductions companies can make on internal interest payments in an effort to prevent “aggressive” tax planning.

If enacted, the changes are expected to generate 6.3 billion kronor ($930 million) in revenue, income which can be used to eventually lower the corporate tax rate by about 2 percentage points from 26.3 percent, Borg said at a news conference in Stockholm today.

“The corporate tax is our most hurtful tax,” he said. “That’s worth pointing out on a day like today, when perhaps our toughest competitor, together with Finland and Denmark, , Great Britain, is flagging very big corporate tax reductions.”

The rules would mean internal interest payments to entities outside the European Union, Iceland, Norway and Lichtenstein that Sweden doesn’t have a tax agreement with would no longer be eligible, the Finance Ministry said in a statement on its website. Deductable payments to countries considered tax havens would thereby be blocked, the ministry said. The changes would come into effect Jan. 1, it said.

U.K. Chancellor of the Exchequer George Osborne yesterday announced further cuts in the rate of corporation tax. Starting in April, the rate will fall to 24 percent from 26 percent, double the cut previously planned. Reductions in each of the next two years will bring it to 22 percent in 2014 instead of 23 percent, Osborne said in his annual budget statement.

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