On 17 September 2012, the Ministry of Finance submitted a second draft government bill regarding restrictions on deductibility of interest for comments. The Finnish parliament approved the bill on 17 December. While the new legislation entered into force as of the beginning of 2013, the new rules would first be applicable in the assessment for fiscal year 2014.

In accordance with the new legislation, net interest expense (interest expense in excess of interest income) is deductible, provided it does not exceed 500,000 euros. Should this level be exceeded, all net interest expense would be non-deductible, with two exceptions. First, net interest expense below 30 % of taxable earnings before interest, tax, depreciation and amortization, and after accounting for granted or received group contributions, would always be deductible. Second, net interest expense above 30 % of the corrected taxable earnings would be non-deductible only up to the amount of net interest expense between related parties. Consequently, interest expense to third parties would remain fully deductible, although certain back-to-back financing and security arrangements would be considered to be related party arrangements. According to the preparatory works of the new bill, loans from a third party secured by a related party by pledging the shares of the debtor, bond-financing (when issued to the public) and conventional cash-pooling arrangements would not be considered to be related party financing.

Although the interest barrier would apply both in domestic and cross-border situations, the scope is, however, limited as follows:

  • The rules would be applicable only to business income, not to real estate and other companies taxed in accordance with the Income Tax Act.
  • Financial, insurance and pension industries would be excluded from the scope of the enacted law.
  • If the equity / asset ratio of the debtor is equal to or higher than the corresponding ratio at the consolidated group level, the rules would, with some further qualifications, be inapplicable.

Any net interest expense that would not be deductible because of the interest barrier could be carried forward and deducted in future years, subject to the above restrictions.


Swedish regulations on interest deductions entered into force on 1 January 2013. The general rule under the regulations is that interest on debts to affiliated parties is not deductible.

Interest will, however, generally be deductible if the beneficial owner of the interest income is subject to a minimum of 10 % tax. The tax rate shall be established as if the interest income was the beneficial owner’s only income. Nevertheless, interest will not be deductible if the debt structure was mainly motivated to obtain a significant tax benefit for the affiliated parties.

Furthermore, interest expenses are deductible if the taxpayer can demonstrate that the debt structure is mainly motivated by commercial reasons. The taxpayer may only claim deductions for interest expenses if the beneficial owner of the interest income is resident within the EEA or in a jurisdiction with which Sweden has a tax treaty.

Special rules apply to life insurance companies, pension funds and other associations subject to Swedish yield tax or a similar foreign tax.