Sweden taxman sets sight on next GP target

Swedish tax agency Skatteverket is intensifying its scrutiny of private equity firms by demanding executives at Altor Equity Partners pay SEK306 million in back taxes.

Executives at Nordic-focused private equity firm Altor Equity Partners have been hit with a SEK306 million ($48 million; €35 million) tax bill.

Swedish tax agency Skatteverket is demanding 11 Altor executives, both past and present, pay the extra tax after an investigation into the firm’s tax arrangements for the 2008 income year.

Altor partners Harald Mix, Stefan Linder, Fredrik Stromholm and Johan Cervin will have to pay the bulk of the bill, SEK271m, while the remaining sum is shared among seven employees at the firm.

Like other pending tax cases in Sweden, the tax agency argues that carried interest paid to these fund managers should be classified as ordinary income and not capital gains. Currently the standard income tax rate in Sweden is 57 percent (excluding payroll tax) while capital gains is taxed at 30 percent.  

Altor's head of communications, Tor Krusell, said the firm could not appeal this decision as it is up to the individuals under scrutiny.

Earlier this year, the Swedish tax agency demanded Altor pay SEK153 million in back taxes and Altor is currently appealing that decision.

In a related case, EQT said it would fight the tax authority’s decision to retroactively tax the firm’s carried interest payments between 2007 and 2009. 

The decision is so obviously wrong and we have difficulties to see how the tax authorities will get legal support for the case

EQT is confident it will prevail in its appeal. “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,” the firm said in a statement at the time.

The industry first felt the full force of the Swedish tax authority in December last year when a Swedish tax court ruled that carried interest paid by Nordic Capital should be taxed as income. 

However, this was at the country's lowest tax court and private equity professionals in Sweden seemed unfazed. “The Swedish tax authority has been on these types of innovative fishing expeditions before and at the end of the day when things are tested in the higher courts, they have lost in all cases so far,” said Joakim Karlsson, a partner at Nordic Capital, at the time. 

Legal sources, too, dismissed the December ruling. Mats Anderson, senior counsel at law firm Linklaters' Stockholm office, said: “The fact that the private equity guys have lost it in the first court should not be too depressing as normally the tax agency wins in the low court.” 

Swedish tax experts said all eyes will be on Nordic's appeal as this will be the first case to go through Sweden's higher court and will set a precedent for the rest of the cases.