Swedish Exit Tax On Companies 'Restrictive,' Says EU

by Ulrika Lomas, Tax-News.com, Brussels

19 September 2008

The European Commission has formally requested that Sweden change its tax provisions which impose an exit tax on companies ceasing to be taxable in Sweden.

Under Swedish law, an exit tax is levied on unrealised capital gains, and deductions made for the untaxed reserves if the company is no longer taxable in Sweden upon a change of the seat or place of effective management, or in case a permanent establishment ceases its activities in Sweden or transfers its assets to another member state.

However, according to the Commission, such provisions impinge on a company's right to freely establish anywhere in the EU, and as a result, they run counter to Article 43 of the EC Treaty, which guarantees freedom of establishment for companies.

The Commission's opinion is based on an interpretation of the EC Treaty by the European Court of Justice (ECJ) in its judgment of March 2004 in the case of Lasteyrie du Saillant, as well as on a Commission communication on exit taxation issued in December 2006.

The Commission's request is in the form of a 'reasoned opinion,' the second step in infringement proceedings against national laws that are considered incompatible with the EC Treaty.

The matter may be referred by the Commission to the ECJ if it has not received a satisfactory response to its request from the Swedish government within two months.

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