Sweden’s taxman re-opens Nordic row

The Skatteverket has asked the Supreme Court to decide whether Nordic Capital should pay a $100m tax bill.

The Swedish tax agency, Skatteverket, has appealed a court decision clearing buyout firm Nordic Capital of a retrospective tax bill. Sweden’s Supreme Court will now decide whether or not to hear the tax agency’s case.

In December, Nordic won its appeal against an earlier ruling by a Swedish court that it needed to pay income tax on previously-earned carried interest, reportedly totalling 702 million kroner ($108 million; €79 million).

The tax agency is arguing that carried interest paid to fund managers should be classified as ordinary income and not capital gains. Currently the standard income tax rate in Sweden is 57 percent (excluding payroll tax) while capital gains is taxed at 30 percent.

The case against Nordic is part of a long-running tax battle between private equity and Skatteverket, which has also filed similar cases against the likes of IK Investment Partners, EQT and Altor Equity Partners. But all eyes have been on the Nordic case, since as the first to make it to court, it will set a clear precedent for all the other cases.

Nordic had hoped its December victory would be the end of the matter. “It should be [the end]; the ruling is so clear,” Nordic managing partner, Kristoffer Melinder, told Private Equity International last month. “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. But it’s clear from the verdict that there is no basis in current Swedish legislation.”

However, it also recognised that the taxman would not give in easily. “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,” Melinder said. “So they have an incentive to keep going.”

Some legal sources in Sweden said it was likely the Supreme Court would indeed hear the case. “It is likely that the Supreme Court will try the Nordic Capital case, both since the case is of create importance for the business and since a case regarding the taxation of carried interest in the corporate sector is already pending in the Supreme Court, said Niclas Hermansson, tax partner at Setterwalls.”

But, others said it would be highly unlikely as the Supreme Court hears only 1 or 2 percent of appeals, and of these the vast majority are accepted to make a legal clarification.

“We have a hard time seeing that the tax agency will be able to come up with anything in the case that is new and would render the Supreme Court to bring the case in,” said Nordic CFO, Klas Tikkanen. “The appellate court back in December were extremely clear on their verdict that there is no legal case here.”

Legal sources said the tax agency has yet to prove Nordic has legal case to answer. However, the sources could not be fully confident the Supreme Court would ignore the case as the tax agency filed a blank appeal.

“Just based on these facts it is quite unlikely that this will be taken up by the Supreme Court, but we cannot be sure until the tax agency has been able to formulate in its appeal,” said Tikkanen.

The Skatteverket requested until February 28 to fully flesh out their appeal. The tax agency hopes to get the Supreme Court's decision before the summer, said Tomas Algotsson, head of the Swedish tax agency's legal department.