Ministry of Finance issues proposal to introduce a new Risk Tax for larger banks and other credit institutions
On the 17th of September 2020 a memorandum with a proposal to introduce a new tax for larger banks and other credit institutions was presented by the Ministry of Finance. If the proposal is enacted the tax will be effective on financial years commencing on or after 2022.
There have been previous discussions about the introduction of a special bank tax. The Ministry of Finance has now issued a memorandum (Fi2020/03725/S1) proposing to introduce a tax for larger banks and other credit institutions, a so-called Risk Tax. The proposal is based on the view that the taxation of banks and credit institutions, which in the case of a financial crisis risk causing essential indirect costs for the society, should be increased. The issued memorandum contains the proposal and conclusions of the Ministry of Finance.
The Risk Tax is to be paid to the extent the credit institution has an opening balance of debts which are attributable to the institution’s business in Sweden assuming the total debt exceeds a certain threshold. Further, the proposal also suggests amendments and additions to the provisions in the Foreign Tax Credit Act in the case foreign tax has been paid by a credit institution within the group to another state within the European Economic Area (EEA).
The issued proposal suggests that a Risk Tax is introduced for larger banks and credit institutions with debts exceeding a specified threshold. The tax rate is set at 0.06 percent of a certain tax basis for financial years commencing on or after 1 January 2022 and is suggested to increase to 0.07 percent for financial years commencing on or after 1 January 2023. According to the proposal the provisions are to enter into force as of 1 January 2022 and be effective on financial years commencing on or after 1 January 2022.
Entities suggested to be covered by the new Risk Tax are credit institutions (kreditinstitut) that have debts at the opening of the financial year attributable to the business that the credit institution carries on in Sweden, but only to the extent these debts exceed a certain threshold.
Threshold for tax liability
The threshold is proposed to be SEK 150 billion for financial years commencing in 2022. For financial years commencing on or after 1 January 2023 the threshold is suggested to be reassessed yearly, to be set at SEK 150 billion multiplied by a number expressing the ratio of the change of the price base amount (prisbasbelopp) between 2022 and the year the current financial year is commencing in percentage with the addition of two percentage points. The threshold value should be rounded down to the nearest billion SEK.
If the credit institution is part of a group of other credit institutions, the value of the credit institutions’ total debt attributable to business carried on by the companies in Sweden at the opening of the financial year should be considered when deeming if a credit institution is tax liable. A debt towards another credit institution within the group should not be included in the assessment of the total debt to the extent the receivables equal to the debt is attributable to the other credit institution’s business in Sweden.
Basis for taxation
The basis for taxation is formed by the sum of the credit institution’s debt attributable to its business carried on in Sweden at the opening of the financial year less debt to another credit institution within the group, to the extent receivables equal to the debt are attributable to business carried on in Sweden by this other credit institution. Thus, debt attributable to business of a foreign permanent establishment shall not be taken into account. Furthermore, the basis should also be decreased by certain subordinated debt as specified in the so-called Resolution Act.
The credit institution’s provisions and/or untaxed reserves should not be included in the calculation of the basis for taxation.
Credit for foreign tax
The memorandum also suggests amendments and additions to the provisions in the Foreign Tax Credit Act.
The proposal suggests that new provisions regarding reduction of Risk Tax for certain credit institutions are introduced. According to the proposed provisions, a credit institution liable to Risk Tax with debt towards another credit institution that is part of the same group, has a right to claim a reduction of Risk Tax by credit of foreign tax paid by the other credit institution.
This requires that certain criteria are met and to the extent the foreign tax does not exceed a certain barrier amount. One requirement is that the basis for the foreign tax corresponds to the basis of the Risk Tax, i.e. based on indebtedness, and that the tax has been paid to a state within the EEA. Furthermore, it is required that the other credit institution is either liable to Risk Tax, but without the receivables corresponding to the debt being attributable to activities that the credit institution carries on in Sweden, or would have been liable to Risk Tax if it had carried on business in Sweden.
An introduction of a special bank tax has been raised previously, and a proposal has now been presented by the Ministry of Finance. We note that the proposed tax, with its tax basis threshold of SEK 150 billion of debt, is assessed to affect 21 credit institutions representing 9 different groups, of which 2 are foreign headquartered groups. The Ministry of Finance supports the level of the threshold with, i.a. the conclusion that these companies are considered to be carrying on business that is critical to the financial system and should thereby be subject to an additional tax. Deloitte will continue to assess the proposal of a Risk Tax and it effects for banks and other credit institutions as well as closely monitor the development following the Ministry of Finance’s issued memorandum with the proposal for introduction of a Risk Tax.