The Swedish tax authorities today announced a decision following two years of investigation of how carried interest, covering the years 2007-2009, should be taxed. The decision concerns the company EQT Partners AB and some 20 current and former employees of EQT Partners AB and states that carried interest should be taxed as income, hence taxed at a higher rate than capital gain.
“We strongly disagree with the tax authorities and EQT Partners AB and the individuals will appeal the decision. The parties concerned have followed all rules and regulations in Sweden, fully declared income and provided all relevant information to the tax authorities. Our view is that nothing new has been found in the investigations that warrant a retroactive change – this is our main argument which is also much common sense. Clearly, the tax agency has decided to make a different interpretation of the legislation without any reasonable grounds whatsoever,” states Johan Bygge, COO of EQT Holdings AB when sharing EQT’s view on the decision in a brief Q&A.
Because carried interest is a return on an investment where the company or the individual take a financial risk when investing. Such return is, and should be, taxed as capital gain and not income – this is fully in line with the ruling tax legislation. It is rather odd to claim that this should be taxed completely different now given that the income declarations have been approved by the authorities for almost 20 years.
We also believe that a retroactive interpretation, especially when it is not based on any material new information, is really dangerous and creates a huge uncertainty for the Swedish system as a whole, both for individuals and companies living and operating here.
They do pay tax as everyone else. All tax rules and regulations are followed in every market where EQT operates and the funds invest. We are all fully transparent in the income declarations and provide the authorities with the relevant information at all times. Nothing new, of significance, has been found in the investigations to justify a retroactive tax request and we strongly believe that the tax agency has made an incorrect decision. And again, EQT pays tax and fully follow the tax legislations.
It is clearly a hypothetical question which is impossible to answer. However, we are pretty sure we won’t lose. The decision is so obviously wrong and we have difficulties to see how the tax authorities will get legal support for the case.