The global minimum tax is fast approaching and on February 7 2023, the special investigator handed over to the Swedish government the interim report regarding the Swedish proposal for the implementation of Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the EU.
A proposed Swedish law on top-up tax
In the 472-page interim report, the special investigator proposes a new Swedish law on top-up tax (lagen om tilläggsskatt). The proposed law largely corresponds to the EU directive but is adapted to Swedish conditions. According to the interim report, the law is intended to be comprehensive and therefore includes substantive and procedural rules.
The Swedish law on top-up tax will apply to Swedish and international groups with revenues that, according to consolidated accounts, amount to at least €750 million (approximately $808 million). According to the investigator, this means that 124 groups with their ultimate parent entity (UPE) in Sweden will be covered by the rules. In total, approximately 12,000 Swedish group entities are covered (out of which, roughly 8,000 Swedish group entities belong to groups with a foreign UPE).
The law is proposed to enter into force on January 1 2024 and to be applied to financial years beginning after December 31 2023 (except for the supplementary rule, which is proposed to enter into force on January 1 2025 and to be applied to financial years beginning after December 31 2024).
Due to the short amount of time that the investigator has had at its disposal, together with the limited insight into the international work and the fact that the OECD published parts of the Model Rules after the proposal had been submitted, the proposal is not complete. This applies, among other things, to the rules on safe harbours, which are not dealt with in the proposal.
Initial observations
The special investigator suggests that a qualified domestic minimum top-up tax is introduced in Sweden (nationell tilläggsskatt). As a result, Swedish group entities will not be subject to top-up tax by foreign tax authorities.
Similar to the GloBE rules and the EU directive, the proposed law contains many definitions that do not always correspond to the traditionally established Swedish definitions. The definitions and explanations are compiled in the second chapter of the law.
The investigation proposes that a top-up tax report (tilläggsskatterapport) and a top-up tax return (tilläggsskattedeklaration) are introduced. Note that the EU directive and the Model Rules lack provisions on national tax return procedures.
In addition, the proposal contains an obligation for group entities to notify the Swedish Tax Agency when another entity will submit the top-up tax report (compare this with the country-by-country notification).
Moreover, the interim report contains three possible sanctions (särskilda avgifter). Most notable is the reporting fee (rapportavgiften), which could be levied in the event of serious deficiencies in the top-up tax report. The reporting fee is proposed to be set at a minimum of SEK 250,000 (approximately $33,000) and a maximum of SEK 10 million.
KPMG comments
The system with an international minimum tax is based on the rules being implemented and applied uniformly in all countries. The EU directive increases the likelihood of such a uniform implementation within the EU.
The proposed Swedish law on top-up tax is, in essence, an implementation that is very close to the content of the EU directive, which, in turn, is based on the OECD Model Rules. Hence, it is a very comprehensive set of rules which today, including the EU directive and the proposed Swedish legislation, includes nearly 500 pages of rules and comments. In addition, there is the entire body of accounting regulation.
Under Swedish tax law, the accounting is important for the accrual of income and expenses but applying the Swedish law on top-up tax, the accounting seems also to control which income is taxable and what expenses are deductible. Hence, there is no overstatement in saying that these new rules, given their special nature, will bring fresh challenges in terms of interpretation and application.
As mentioned, important parts of the Model Rules are still missing in the Swedish proposal; not least, the safe harbour rules. Based on how the directive is designed, however, KPMG Sweden’s assessment is that the rules on safe harbours will also be applicable within the EU.
The Transitional CbCR Safe Harbour can certainly ease the administrative burden for many groups, at least during the transitional period (i.e., FY 2024–26 for companies with the calendar year as their fiscal year). Nonetheless, there remains a lot of work to do within the OECD and additional guidance will be published during 2023.
In light of the complexity of the Model Rules and the heavy administrative burden that is associated with their application, KPMG Sweden’s recommendation is that in-scope groups should intensify their internal work with planning and adaptation to this new tax system.
In the authors’ experience, it is not the top-up tax itself that is the biggest concern among covered groups, but the identification and handling of the data that needs to be collected to calculate whether an entity is low taxed. The lack of supporting IT systems for making such calculations and storing data may also be problematic.
The interim report has been submitted for comments until May 15 2023. However, as the proposal is not complete, additions to the Swedish legislation are expected during spring and a final legislative proposal during the summer or early autumn. The interim report is far from the last piece of the puzzle before the Model Rules can be fully applied. However, the fact remains that the top-up tax will become a reality for many groups in 2024.
