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High Taxes Could Force Spotify Out Of Sweden

by Ulrika Lomas,, Brussels

20 April 2016

Unfavorable tax rules are one of the major reasons why music streaming service Spotify is considering moving part of its business out of Sweden, the company's founders have said.

In an open letter published on Medium, the online publishing platform, Spotify co-founders Martin Lorentzon and Daniel Ek observed that certain aspects of Sweden's tax and regulatory environment make it very difficult for start-up companies to grow.

In particular, Lorentzon and Ek highlighted the punitive taxation of stock options in comparison to other countries like Germany and the United States, which they said makes it "impossible" for Swedish companies to reward employees with stock options. This is because stock options attract both income tax and social security levies, which are both high in Sweden.

"In the US, stock options are taxed to the employee as income from capital at a rate of 15-20 percent, in Germany the level is 25 percent. In Sweden it is considered today as income from employment and thus taxed at 70 percent," they wrote.

What's more proposals by a government commission to ease the taxation of stock options are overly restrictive because they would apply only to companies in certain industries that are under seven years old and have fewer than 50 employees, the authors said.

"A company like Spotify [is] therefore not covered at all by the commission's proposals," the letter states adding: "The legislators must recognize that we are competing on a global talent market and that the price for worse conditions in a country is high."

According to the letter, the way the real estate market is taxed and regulated also makes it harder for innovative Swedish start-up companies to attract skilled workers from overseas because it has created a lack of affordable rental housing.

Lorentzon and Ek warned the Government that by failing to change its policies, Spotify is considering whether it is better "to expand more in other countries instead of Sweden."

TAGS: tax | business | share schemes | employees | small and medium-sized enterprises (SME) | Germany | Sweden | United States

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