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Memorandum from the Tax Agency concerning Deduction of Interest Expenses

Beginning 1 January 2009 certain interest expenses are no longer deductible. The Tax Agency was assigned to map out existing business related deductions of interest expenses by the Government and at the same time the Tax Agency was assigned to evaluate the need for further restrictions. Recently the assignment was published in a memorandum given to the Government.

The Tax Agency suggests the following further restrictions:

• If the Tax Agency can prove that the acquisitions of shares, as well as the debt to which the interest expense relates, are not primarily for business reasons the restrictions will apply and the Tax Agency will disallow the interest deductions - even if the exemption according to the so called 10% rule applies.

• Decisions against the tax payer which is based on the above stated restriction may be made within five years (instead of two years) from the year of assessment, even if the tax payer has not given incorrect data.

Also a rule of disclosure in some form is necessary for the Tax Agency to perform any preventive actions efficiently. A rule of disclosure obligates tax consultants and tax payers to inform the Tax Agency of any tax planning put on the market or used. However, this question was not covered by the initial assignment and therefore the Tax Agency suggests that it should be analyzed further whether such rules should be implemented or not and if so in what form. Furthermore, the Tax Agency suggests a universal overview of the significance of deduction of interest expenses for companies.

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[2009-12-22]