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Elizabeth Conway, tax partner, Linklaters

Swedish court decision on carried interest

Elizabeth Conway, tax partner, Linklaters on the recent Swedish Administrative Court decision that carried interest should be deemed employment income…

The private equity industry could be forgiven for wondering whether the Swedish Administrative Court’s decision last week on carried interest marks a turning point. The Swedish court held that  carried interest earned by certain Swedish executives should be taxed as employment income (rather than at materially lower capital gains rates). Given the wave of new tax rules across a number of European jurisdictions designed to coerce private equity houses in to de-levering their structures, and in the wake of the broader outcry against tax minimisation by corporations such as Amazon and Google, carried interest might seem another obvious target.
There is no immediate sign, however, of changes to the tax treatment of carried interest gaining any traction.  Carry continues to be taxed favourably in the UK and the US, the recent French proposals to tax carried interest as employment income have been largely reversed and the view among many Swedish tax advisers is that the taxpayer will ultimately win in the Swedish cases. The UK is even proposing to extend its tax breaks for employee share ownership from April next year. It would seem  for the moment that the spotlight remains firmly on corporate taxpayers.


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