On 28 October 2021, the Swedish government submitted its proposal for a new “risk tax” aimed at major banks and credit institutions.
The proposal, although it has been heavily criticized by several organizations during the consultation procedures, has been proposed to be incorporated into Swedish legislation from 1 January 2022.
The proposal is aimed at larger banks and credit institutions, arguing that the activities of these institutions constitute a major financial risk for Swedish society should a new global financial crisis occur.
Risk taxation – the short version
The risk tax will apply to the extent that a credit institution (at group level) has liabilities linked to Swedish operations of more than SEK 150 billion ($ 15 billion) at the beginning of 2022. The threshold amount will increase annually based on an index. All debts within a group should be included, except for the following:
- Intra-group liabilities;
- Provisions and untaxed reserves; and
- Debt that is not attributable to Sweden (ie debt in a foreign group company that is not attributable to the operations of a Swedish branch / Swedish operations).
The proposed tax rate is 0.05% (0.06% from 2023) which is imposed on the gross debt linked to the Swedish operations. A group with a gross debt of SEK 150 billion would thus have a total tax debt of SEK 75 million for 2022, while a group with a gross debt of SEK 149 billion would have no tax debt.
With reference to the above, a common view expressed during the consultation procedures has been that taxation in this form should be considered as state aid that distorts competition in the credit market within the EU.
State aid is not allowed within the EU without a formal approval from the European Commission. The opinion is based on the fact that taxation is not progressive but rather is aimed at larger institutions that leave other players in the market without tax liability. Furthermore, as stated above, it is proposed that taxation be levied on the entire gross debt and not just on gross debt that exceeds the proposed threshold amount.
However, the Swedish government does not regard the risk tax as state aid in the sense that several organizations have expressed views during the consultation process. It can be argued that the argument presented is vague. The content of the argument is that the taxation of, specifically, larger institutions is valid based on the risk these entail for Swedish society in the event of a financial crisis. Other credit institutions are not exposed to the same risk and are therefore not considered to be in a comparable situation.
Despite this, the Swedish government on 3 September 2021 asked the European Commission for a confirmation of their view on the issue. According to the government, the proposal will not be implemented until a confirmation from the Commission has been received. In other cases, the time for obtaining a decision from the Commission has been over a year (for example, C 596/19 P and C 562/19 P concerning targeted taxation in Hungary and Poland).
Whether it is possible to get a confirmation from the Commission and have time to vote and implement the new legislation for it to enter into force on 1 January 2022 is difficult to predict.
Although it is proposed that the legislation will enter into force in less than two months, the Commission applied for a conformation as late as September 2021, and in our understanding will probably not be seen in the near future.
However, as it is clear that the government wants the proposal to become a reality as early as January 2022, it is imperative, if not urgent, for banks and credit institutions to review their gross debt and consider the effects of the new risk. tax.
Senior Chef, KPMG
Senior associate, KPMG
© 2021 Euromoney Institutional Investor PLC. For help, see our FAQ.