Sweden slammed for keeping EU tax loophole open

Sweden came under fire Wednesday (7 May) for blocking a political agreement among EU finance ministers that would allow the closing of a loophole costing European taxpayers millions ofeuros.

Campaigners called for a swift resolution of the deadlock, which stopped the expected approval of a compromise brokered by the Greek Presidency of the European Union at Tuesday’s ministerial meeting.

The deal would have split the revised Parent-Subsidiary Directive in two, allowing member states to slam shut a loophole on hybrid loan arrangements without agreeing to a hotly debated general anti-tax abuse rule. All EU tax law requires unanimous support from member states to be passed, forcing the split.

“Governments have already taken a long time to discuss this issue, and now they are once again delaying action. While we’re waiting for them to adopt this directive, multinational companies can keep dodging taxes and European countries risk losing very large sums of money,” said Tove Maria Ryding, tax coordinator at the European Network on Debt and Development (Eurodad), a network of 48 non-governmental organisations.

Parent-Subsidiary Directive loophole

The European Commission has identified hybrid loan arrangements, a combination of debt and equity, as a tax planning tool. By exploiting provisions in the original Parent-Subsidiary Directive, which was meant to ensure cross-border company groups were not taxed twice, they can avoid paying any tax at all.

Finance Minister Anders Borg said the proposed text could inadvertently affect a Swedish model of investment company he wished to protect. Large businesses such as Volvo and Eriksson use the model to invest in smaller portfolio companies.

The current wording could prevent foreign investment in the model because of a risk of double taxation, Borg told fellow finance ministers. EurActiv understands Sweden is concerned that investment by the companies in other European business could also be hit.

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