Privately Speaking Nordic Capital

Nordic Capital’s Stockholm HQ is housed in a beautiful building with a prime location – right in the middle of the city, overlooking one of the main squares. Nonetheless, it takes PEI about ten minutes to actually find the way in: the nondescript ground-floor doorway that leads up to its third-floor office is hidden away just inside the entrance to an upmarket shopping arcade, past a market stall where a trio of fishmongers are selling their wares (they’re not much use for directions, as it turns out).

It’s a setting – centrally located but determinedly low-profile – that seems entirely appropriate for a firm that has rather reluctantly found itself at the centre of the increasingly fractious debate in Sweden about the merits of private equity.

For the last few years, the Swedish tax authority has been aggressively pursuing Nordic over tax previously paid on carried interest. Other firms have also come under scrutiny since – as part of the tax authority’s wider push to start taxing carry as income rather than capital gains – but since Nordic was first in line, it effectively became the test case.

Happily, as PEI sits down with Nordic managing partners Joakim Karlsson and Kristoffer Melinder in early January, there’s finally light at the end of the tunnel. In December, a judge ruled in Nordic’s favour in the latest round of their long-running legal battle – and the written verdict seemed to vindicate the firm to such an extent that it’s not clear whether the tax authority would now get the approval it needs to pursue the case further, if indeed it wants to (at press time, there had been no word on its intentions).

Given that Nordic could supposedly have ended up having to pay over €50 million in back taxes, presumably the ruling prompted some pre-Christmas celebrations? “I’d say relief was probably the right word,” Karlsson says, with a slight grimace. “If you read the law, it seems pretty clear-cut. But this is a court of law, so you never know – you’re always a little bit worried that maybe you’ve misunderstood something, or something else will go wrong. But ultimately what happened was what we expected to happen.”

Will this be the end of the matter, do they think? “It should be; the ruling is so clear,” Melinder says. “But this has been a big case for the authorities; they’ve invested more resource in this than they have on any other case in the recent past. So they have an incentive to keep going.” 

From the outside, it always seemed rather curious that the tax authority was pursuing this case so vigorously. After all, there are not many legal precedents (at least in civilised countries) of the authorities changing the tax rules after the fact. “The tax authority has a view on what they’d like to see [in terms of how carry should be treated], and they’ve spent several years trying to find a basis for that in law,” explains Melinder. “But it’s clear from the verdict that there is no basis in current Swedish legislation.”

However, if this is a victory, it’s come at a cost. Even if it all ends here, Nordic will have spent hundreds of hours of time and (presumably) hundreds of thousands of krona in legal fees, only a small portion of which will be reimbursed. Meanwhile, the broader problem – i.e. the ill-feeling towards private equity in Sweden, of which more later – remains largely unresolved. And one thing’s for sure: it’s not the kind of thing you want to be talking about on the fundraising trail.