Sweden proposes higher tax on private equity profits | G7Finance ...

STOCKHOLM, March 29 (Reuters) ? Sweden moved to tighten tax
rules for owners of stakes in private equity funds, part of a
push against untaxed profits in the 250 billion crown ($37.5
billion) industry, which is the second biggest in Europe
relative to economic output.

A Finance Ministry proposal aims to tax income of private
equity fund owners, or so called carried interest, primarily at
the income tax rate rather than the capital gains rate which is
lower.

The Finance Ministry said there was a need for greater
clarity in the area which would be beneficial for private equity
in the longer term.

?The uncertainty around how this income should be taxed has
led to a situation which in the future could be harmful for this
kind of economic activity,? the Ministry said on Thursday in a
note accompanying its proposal.

While much of Europe has seen restrained private equity
activity recently, Sweden and the rest of the Nordic region have
been having a bit of a boom as the countries have suffered less
from the sovereign-debt crisis.

But profits made by private equity firms in Sweden, the home
of social democracy, have raised eyebrows.

The government, in the hands of the centre-right but
sensitive to allegations it favours bankers, has already moved
recently to close other private equity tax loopholes after
scandals related to private equity in the tax-funded healthcare
sector.

The latest move against carried interest targets
arrangements which typically entitle private equity partners to
a share of profits from a fund. In much of Europe, carried
interest is treated as capital gains and is subject to lower tax
rates than wages.

The issue hit the spotlight in the United States during the
Republican presidential primaries, when front-runner Mitt
Romney?s low-tax private-equity payouts were castigated by
opponents.

The new Swedish rules include a statute meaning any person
who through a broad range of vehicles, including trusts, owned
stakes in private-equity firms would be taxed on dividends and
profits as if the stake was owned directly by that person.

Dividends and profits by private-equity partners would be
first taxed as income from employment up to a ceiling, after
which the remainder would be taxed as income from capital, at a
lower 30 percent tax rate, the ministry said.

The regulations, which if passed by parliament would come
into force at the turn of the year, cover private equity funds
that acquire, manage and divest shares in unlisted companies and
where their stake at any point amounted to 50 percent or more.

Late last year local media reported that tax authorities had
landed the founder of private equity firm IK Investment Partners
with a tax bill of almost 1 billion crowns ($149.7 million).

The proposal has been sent out for comment to various
government instutions, including the private equity lobby.
($1 = 6.6818 Swedish crowns)

(Editing by David Holmes)

Source: http://g7finance.com/g7finance-news/sweden-proposes-higher-tax-on-private-equity-profits/

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