Nordic Capital’s NC Advisory Wins Appeal in Retroactive Tax Case

NC Advisory AB, the adviser to Nordic Capital’s funds, won an appeal against a previous court ruling granting the Swedish Tax Agency the right to demand 702 million kronor ($108 million) in retroactive tax payments.

The administrative court of appeal in Stockholm dismissed the tax agency’s claim, according to a statement distributed via email today, meaning NC Advisory doesn’t have to pay.

The agency has demanded more than 3.3 billion kronor in additional payments from Swedish private equity funds’ advisory firms and partners after deciding that the profit-share set aside for fund managers, called carried interest, should be taxed as salary, with a higher tax rate, rather than as capital income. The court of appeal today ruled that it should be taxed as capital income, saying the money paid is unrelated to employees’ work performance.

“The court has clearly concluded that NC Advisory AB has paid tax in accordance with the existing legislation,” Joakim Karlsson, Managing Partner at NC Advisory, said in an e-mailed statement today. “This issue has crated a lot of uncertainty and pulled a lot of resources for the entire industry and the tax agency and it’s good” that the court verdict has now established the rules, Karlsson said.

The private-equity companies involved in the case have argued that the tax agency’s stance has no legal basis. Goran Haglund, the previous coordinator of the tax agency’s investigation of private equity firms that started in 2007, said in an interview late last year that if pay relates to work-performance “then it should be taxed as work, or in other words, regarded as a salary.”

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