[0:08]Yes, come here. Welcome back. It's tax day, here we will talk about the 3:12 rules. We all know that they have come right. Annika and Oscar will soon get an applause here. Send in your questions now and then welcome Annika and Oscar.
[0:33]Thank you very much. Eh, welcome to our session on 312. Shall you click or shall I? We haven't talked about that before. Annika Svanfeldt is my name. I've worked at PwC for just over 17 years, with this type of questions. Oscar Waglo is my name, and I've been at PwC for a little longer than 19 years. With a focus just on 312. And we will make a very brief stop in how history has looked around these rules, why they exist. Then we will briefly go through the proposal that an investigation presented in June last year. And then we'll go into a little bit like, what does the proposal mean now? We haven't received anything more, but can we start thinking already now? And who should do that, if so? Yes, and this will be a pretty quick overview because we don't have a lot of time, and at the end, if anyone has questions, they can raise them or submit them for those of you who are watching. Eh, just very briefly, why do we actually have 312? Well, it's a regulatory framework that is specific for people who are shareholders in a company to ensure that there is no income conversion, meaning that you don't choose to take a capital gain in the form of a dividend instead of a salary. So it's a standardized regulatory framework that has been around for quite some time and is intended to ensure that the tax system is fair.
[2:07]Eh, so, as Annika said, a proposal for reformed 312 rules came out this summer, which is called something as nice as 'improve and simplify'. One might wonder when we talk today if it will be an improvement and simplification. It rarely happens when you change tax legislation. But we received that proposal already this summer, and last autumn, the referral bodies submitted their comments. Some were positive, some were negative, to different parts. Now we are waiting for the Law Council's referral and a proposition. So everything we are talking about today is the proposal from this summer. We believe that a new proposition will come around this summer. Then there might be changes in what we are talking about. You have to keep that in mind. And then our guess is that this will be included in the autumn budget and passed then. Mmm. And what does the proposal mean now then if we are going to draw it a little quickly? The first part is that a new model for calculating the threshold amount is being created. You who know these rules on your fingertips, you know that today we have two different ones. We have a standardized rule with a certain standard amount, and then we have what we call the main rule with a calculation based on my acquisition cost and the salaries in the company. Now these two rules are being combined so that you will have a basic amount if you look at the model on the left there, so you start furthest down with a basic amount that is increased from today's 2.75 income base amount to four. So we go from approximately 220,000 to 320,000, based on current levels of income base amounts. On top of that, you can then add a salary-based scope, and there you change how that is calculated. You will calculate it as first, what is my share of the total salaries? From that amount, I will deduct eight income-based amounts, which is almost 645,000, and what remains after that, half of that, will then be my salary-based scope that I can have as my low-taxed scope.
[4:20]You also keep this part about an upward adjustment of the cost amount I have, but that will only apply to cost amounts exceeding 100,000. So actually a combination of these two models that exist today.
[4:37]Eh, in addition to this new model for calculating the threshold amount, some rules that currently apply are also abolished. Among other things, the so-called 4% barrier, it disappears so that everyone can calculate according to this model, regardless of how large a share they own. And the salary withdrawal requirement is also abolished. As it is today, the owner must withdraw a certain salary themselves to qualify for calculating this salary basis, but that is abolished. However, you still keep that 50 times your own salary is set as a cap on how large a salary-based scope you can have.
[5:18]One might think it's a bit funny in a regulatory framework that is supposed to prevent income conversion and that is built on the idea that you take a certain salary to ensure that there is no income conversion, if you now remove the salary withdrawal requirement.
[5:32]Yes. But that's a simplification, you can say. Yes, it's a simplification. No salary. Eh, a few more things that will change. One thing is that if you have a saved threshold amount, it is calculated upwards systematically every year. So, shareholders who have a large salary basis on their K10, but no longer have it, can continue to grow it all the time and with quite large amounts. That is now being abolished. Historically, you will still have the threshold amounts you have, based on old salaries, but you will not get this compound interest effect that has existed previously.
[6:07]Eh, there are a few more things that are a bit special, and one is that there is a clause that says that if you have subsidiaries where you normally get to deduct salaries, you won't be able to do that next year if the subsidiary has been financed via certain types of loans, capital contribution loans, profit-sharing loans, shareholder contributions, over certain amounts, 25 million, right, 25 million plus the share capital.
[6:36]This is a very specific, a bit odd effect in the new 312, but it is targeted towards the venture capital industry, quite specifically, but our assessment is that it will hit a bit wider.
[6:49]So that's something to think about if you take in such a loan financing into your subsidiaries, because then it can mean that from next year you won't be able to calculate a salary basis there. The other two points I think you had already taken care of. Eh, within the 312 rules, we talk a lot about close relatives, what close relatives do, and what the owner does, and what close relatives do, and that is combined. Eh, the circle of close relatives has been the same as applies throughout the income tax act, but now a change is proposed where siblings will be exempt from the circle of close relatives, according to these chapters that govern the 312 rules. So that means that if I have siblings in the ownership circle who are passive, they will eventually become unqualified shares and thus no longer fall under this regulatory framework, and then eventually be seen as external owners to the siblings who are still active.
[8:14]So that this has probably received some criticism that you get a special close relative concept only for these rules and that you can't have the same throughout the income tax act. But we'll see what the final proposal will be. That's probably a part where there might be changes, I think, in the proposition. Certain referral bodies were quite critical in that part. Eh, other things that are changing, one thing is probably this period of grace. When you stop being active in a company limited by shares, according to current rules, you fall out of the 312 regulatory framework after five full calendar years. There you shorten it to four years. So that is, well, yes, that's positive, one can briefly state. Such periods of grace, tax advice is probably the most common tax advice in Sweden, actually, where entrepreneurs, when they retire, put the company in a period of grace. Now it will be a shorter year. Eh, did you mention the joint ceiling amount? No. One more thing that is actually a simplification is that today we have a when you have used up all your threshold amount, the low-taxed scope, you tax the excess in service up to these 90 or 100 income base amounts that Annika talked about earlier. Today we have one such amount for dividends and one for capital gains, which makes it a bit messy if an individual, for example, has taken a dividend and then sells some of their shares, then you can get a double effect of this, that you tax in service. Now when you combine these, it means that we get a single ceiling amount for service taxation, for dividends and capital gains, which is good, it will be an improvement for many, it will be a simplification, and in addition, it is said that you look at this ceiling amount over a period of three years.
[10:06]Today you look at dividends separately each year, so if you take a dividend one year and tax a lot of service and take a dividend again next year, then you have to tax service again. For capital gains, you have five years to calculate if you have sold shares in the same company. Now these rules are combined, and it is said that you have a three-year period. Which is also an improvement, quite clearly.
[10:31]Eh, the special subsidiary definition has, since what is it, 2012-2013, at the same time as the 4% rule came, said that in order for you to be considered a subsidiary in these rules, you must own more than 50% of the capital in a company. And then you divide that down in a group.
[10:52]Now that rule is removed, so it doesn't really matter. You don't need to own 50% or more than 50% of the capital in a subsidiary to be able to deduct salaries. Instead, the basis is that you, according to the Companies Act's definition, must be a subsidiary. And there you can have more than 50% of the votes. You can have control of the board and things like that. Which means that it becomes a broader concept for what are subsidiaries. We will also be able to get the effect that existed before these capital contribution rules were introduced 10-12 years ago, that we can actually have a company that is a subsidiary to two different groups. And that is now said to be okay again, because you still only get to calculate salary basis based on the capital share. But for example, you can imagine a classic joint venture where you have a subsidiary that is owned 50-50 by two entrepreneurs via holding companies. Today, none of them can calculate any salary basis, which is a bit strange. And from next year, it would actually be the case that both can do that.
[12:00]No, there's no simplification there anyway. Eh, two short things left. One is that if you make share exchanges, which is quite specific, we now need to work and do certain things at certain times of the year so that you don't get bad effects on the salary basis for the current year. That is simplified, so it will no longer have any significance. We think that's really good, because it's something that's very easy to make mistakes on. And the other thing one can wonder about simplifying, but a rule is now being introduced that all private companies in Sweden must submit control information to the Swedish Tax Agency for their owners. And that means not only private companies according to the simple definition in the 56th chapter, but an expanded definition in the 57th chapter, which, to be honest, is extremely difficult to interpret. And our assessment is that there are much more private companies in Sweden than one understands.
[12:46]And all these companies must, from next year, submit control information every year on who owns shares in the company. This is done to simplify for the shareholders, so that the Tax Agency can help them to make the declaration easier for them, but it is quite a large burden, I would say, for the companies. And if you think of a group that is a holding company at the top, according to some definition, then all its subsidiaries will also be private companies. So you can wonder if it means that all companies must submit or how you do that. Not much simplification there anyway.
[13:26]Eh, if you listened to me and Oscar last year, we talked about what kind of changes we hoped would come in this investigation.
[13:41]Eh, I think we at least checked off the three first points on this list, which were wishes for where we would like to see that one clarifies or simplifies.
[13:56]Eh, it applies, but, one should say, when the proposal is then presented, then we and many others were a little disappointed that one had ducked some of the really big questions there where it is today quite complicated and unclear in the regulatory framework.
[14:48]Eh, it also applies to the outsider rule, which in later years has been very debated and has had many or many lawsuits concerning how this concept should be interpreted. Eh, none of these did one choose to go into. Eh, one touches on them in the investigation, but says that one actively chooses not to go in and adjust. And the reason is primarily, at least what concerns points 2 and 3 here, that there is, one thinks, so much practice in the area that there is still some type of stability in the legal situation, and if one were to go in and start adjusting in the regulatory framework, well then, in a way, that practice would be reset and then one would need to work it up again then. So that one has chosen not to go in. We should, however, mention that regarding the outsider rule, one has, in practice, previously said that it is 30% of what the outsiders must own in the company for the outsider characteristic to be applicable.
[15:50]Eh, it hasn't been written anywhere, but it's, as I said, a result of practice where calculations were made on how this income conversion affected. Eh, now, according to the proposal, one will codify those 30% so that it doesn't become a discussion going forward. Eh, you also received some additional directives in this investigation. You can remember that it was appointed by the previous government, eh, and then the investigation started working, and then we had a change of government and then some additional directives came in what should be looked at. Among other things, the question of these qualified employee stock options was added, eh, where one wanted then that the rules should favor those shareholders, and one also added that one should review ownership changes.
[16:38]Eh, we don't, there are no special rules for these two. Eh, you can say that this abolition of the 4% barrier benefits those with employee stock options. They often have smaller ownership stakes and could then, according to current rules, not calculate any salary basis, but there they would then get an opportunity to do that.
[17:07]Yeah, then we thought that in five minutes we could briefly go through who are actually the winners and losers and what you should think about. And then there will be a short question and answer session.
[17:18]If we start with the winners then, the investigation has said that 80% of all those who are affected by these rules are winners. And how can they say that? Well, it's because you raise the standard amount from simply 200,000 to 300,000, and that's the most used rule by all business owners in Sweden today, so it's quite easy to say that 80% are winners. Yes, 100,000 more of such a basic amount, that's good. Eh, some who are also winners, as we discussed, are the minority shareholders who own less than 4% but and therefore have not been able to benefit from a salary-based scope, but there one now opens up the possibility for for to do that. Then comes a point that has both advantages and disadvantages, but the advantage then, that by removing siblings as close relatives, there are family businesses today that have a quite bad tax situation because of 312, but if you have made a generation change and where siblings who do not work in the business can become external owners and make the family business fall out of 312 in the long run. If you want that, then this is good. It's a small cliffhanger there when it comes to negative on the other hand. Precisely, then we also have, as Oscar mentioned earlier, we shorten this qualifying period from five to four years, so that the owners who plan or perhaps are already in a qualifying period are winners.
[18:46]It should, however, be mentioned that those who put their company in a qualifying period in 2022 and would then potentially have fallen out of this regulatory framework in 2026 according to the new rules, they will not be given it, but an transitional rule is set there so that those who put their company in a qualifying period from 2023 onwards, they benefit from the shortened qualifying period. Yes, who can lose then, and one who strikes a little differently, but everyone who uses the salary base is a loser when you remove the salary deduction requirement and instead deduct those approximately 600,000 from your threshold amount. Or from your salary base makes all those who calculate such a thing practically lose 300,000 in threshold amount, which means that all those who use that rule are then losers, because for those with large salary bases it won't play such a big role, but for small owners in companies where there aren't very many salaries, they will be able to get quite a drastic change, which is a deterioration. Yes. Small will go into this with siblings as close relatives is a bit of a double-edged sword. Some think it's great, but then there are actually those families who have very large salary bases and who benefit from the 312 rules and have a good tax situation.
[20:10]If you then have siblings in the ownership circle who are passive, they will eventually become external owners. It's not something that will happen overnight, and the rules are proposed to come into force on January 1, 2026. Then these siblings must first have a four-year grace period before they themselves become passive owners. And then a new qualifying period of four years begins before they are considered external owners to their active siblings. So that on January 1, 2034, this can then have an effect for those families who potentially do not want to fall out of the 312 regulatory framework. Yes, one more thing is companies where the owners have different proportions in the company. Today, everyone who owns a pro rata share of the salary basis receives it in the same way. Now, when you remove these eight income-based amounts, it means that everyone will receive different threshold amounts.
[21:10]It complicates when calculating how much dividend you can take, and it will lead to more administration. You will need to use people like us more, so it is like a complicating factor, just to put it that way.
[22:42]Mm. We'll do this in one minute, I think. Oh dear. One minute. Fast. No, but I think that what we have already said, actually, when we look at the previous slide, who needs to think now? Well, actually everyone might need to think and consider what this proposal means for me. Eh, does it affect my threshold amount and the owners of my company?
[23:05]Eh, but also, as I said, if you have siblings in the ownership circle, if you have a dispersed ownership or you have minority owners who may have structured their ownership in a certain way, maybe you should consider restructuring that. Eh,
[23:21]When you have subsidiaries with a salary base, consider the subsidiary definition, but also if you have taken in capital in some way. Eh, and then we have just gone into this with different ownership shares. Eh, so that, actually, I think that these proposals, as the proposal looks, actually affect everyone in some way. Eh, and the proposal is that this should come into force on January 1, 2026. So that is not many months left if now one continues and the legislative process goes as we believe. Eh, so that it can be worth considering.
[24:02]Because it is also so that we have, even if the law comes into force on January 1, 2026, you always look at salaries the year before when you calculate your threshold amount. So that, actually, it is time to look already now if you should do something. Yes. Mons, have questions poured in? Eh, two, but also positive feedback on the two last slides here, that they were very pedagogical, winners, losers and what you need to think about. So you will get that with you. Mmm. When you talked a little about it, you said the first of January, someone asks if you can repeat what you said at the beginning, you showed the process from what happens from Tax Day 2025 up to January 1, 2026. You were talking about that at the beginning, but no. Well, we are waiting for a Law Council referral and a proposition, and then we will see changes in the rules from the proposal. We don't know when they will come, but we guess that it will come around the summer, probably just before the summer, it should come then. And when that has been presented, then a decision must be made in the Riksdag, and it can be a separate decision regarding this, but the probable, we believe, is that it will be included in the autumn budget. And the autumn budget, that is usually decided sometime in October. No, I think later. The decision is usually at the end of November, beginning of December, I think. But it's pretty certain that it will pass if it has come so far. Yeah, but the point is perhaps that it can take so long until we know for sure if this goes through, but that's why you might have to plan now, based on what you think it will be, and then wait and see if it actually becomes anything. Exactly. Yes. Thank you. Then there is someone who asks if if if you think there is something missing in this new proposal? Or has one missed something that one has not thought about? What do you say, 19 years and I don't know how long you've lived with 312 now in your whole professional life. Well, it was a bit of what we were talking about, just these big questions around the definition of companies, around outsiders. There is a lot of ambiguity that even if you say that it is practice that has created some kind of stability in the investigation, so maybe we don't really agree on that.
[26:17]There is a lot of work for us to do around those questions, so maybe one ducked these a little harder, a little bigger questions, and then one has gone into the details a little bit. So that's probably what we think is missing. I also think that the ambition has been to improve and simplify, and above all, to simplify, so the committee that developed this has tried to make simplifications. But as practitioners and working very much with these practical questions, it is a lot that is presented as a simplification that we realize when this just gets harder, it gets harder for the shareholders to understand, it gets harder for them to do it themselves. They will need to hire us more, and that's a bit funny, but that's actually the case with almost all tax legislation, that the ambition is always to be simple, but it just gets more and more complex. It's in the nature of things, unfortunately. It's great when questions start coming in, so now there are two more here, and I'm the one who controls the time so we'll continue. No questions from here, no, no. Good. Good. Great, thank you. One applause. Thank you very much.
