Nordic Capital employees to appeal tax ruling

NC stated that a number of "misunderstandings of factual matters" and a lack of consistency with previous rulings motivated its decision to seek leave to appeal. The firm recognised that it would be difficult to secure said leave to appeal, however.

NC chief financial officer Klas Tikkanen said in a statement: "It is difficult to secure a leave to appeal to be heard before the Supreme Administrative Court, but if it has ever been warranted, it is now."

This particular appeal would focus on some of the rulings that covered investments using debt instruments. NC argues that the Administrative Court of Appeals based its decision to tax returns on these as income on the fact that the profits made by portfolio companies during the ownership period are what determines the interest, which NC disputes. "Given an accurate description of the reality of the matter, a different conclusion would have been reached," the firm added.

NC also argued that imposing tax surcharges, as the Court of Appeals did, is unreasonable.

On 27 April, Sweden's Administrative Court of Appeal (SACA) issued a decision on the taxation of carried interest over the 2007-2012 period in a number of private equity structures, with cases involving firms such as EQT, Altor and Nordic Capital, with the verdict vindicating the Swedish tax authority (Skatteverket). While the private equity industry appeared to score a decisive victory and escape the taxation of carry as income in 2014 after two years of fierce legal battles, Skatteverket's determination to see the cases through eventually came to fruition three years later.

According to law firm DLA Piper, SACA ruled that carried interest would be partly taxed as income from employment and partly as capital gains in five of the cases (Altor, EQT, Litorina, Segulah and Triton), while IK and Nordic Capital employees would see carried interest fully taxed as income from employment.

SACA based its decision on whether carried interest should be taxable as the marginal personal income tax rate because the individuals in question are employees of the Swedish limited liability company that advises the general partner (a common arrangement in Sweden), or taxable as capital income of the limited liability company – in some of the cases settling for a combination of both, as is usually applied to small private company owners in the country (locally known as the 3:12 rules).

NC said on 22 June that the rulings based on the 3:12 rules would "probably also be applied at a later date" since it also disputes the accuracy of the basis for this decision.

Speaking to unquote" shortly after the April rulings, Sven-Åke Bergkvist, a partner at law firm Mannheimer Swartling, which is representing Nordic Capital, said the outcome of the appeal process could take some time and still go either way: "All the firms involved will most likely want to get involved in bringing the case to the Supreme Court – but it is not an easy task, as one needs to secure authorisation to have the case examined for a third time, and we are also talking about a large number of taxpayers. All in all, the chances of overturning the appeal will not exceed 50%."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Nordics
• GPs
• Regulation
• Nordic Capital
• Sweden
• Swedish tax case