Swedish funds industry welcomes proposed tax cuts

Swedish government proposals to apply a lower rate of tax on a new type of investment savings account have been welcomed by the Swedish Investment Fund Association (Fondbolagens förening).

The Association previously lobbied hard for the government to adjust its initial proposals for introducing the new type of account – Investeringssparkonto – through its upcoming Autumn Budget.

The main sticking point was the suggested level of flat tax that would be applied on gains, as well as requirements to notify fiscal authorities of individual portfolio adjustments, which could have made the account difficult to administer and unattractive for both domiciled taxpayers and providers.

The Association said the level of tax as originally proposed would lead investors to shun the account, including those invested in funds.

The government has outlined measures to tackle these concerns in its latest proposals, including:

   – linking the flat tax rate to the government borrowing rate (statslåneräntan) – which is used as a reference rate for tax legislation, and which is set by the Swedish National Debt Office (Riksgälden) on a weekly basis – but removing a multiplier consisting of the borrowing rate + 0.75%,

   – ensuring that individual transactions within portfolios do not need to be reported to fiscal authorities,

   – applying a fairer tax rate based on average expected returns, similar to the approach used currently for endowments and pensions.

Other tax changes are proposed to ensure investors do not pursue tax avoidance through other types of accounts, which may be affected by the changes to statutes implied by the Investeringssparkonto. For example, the government says it is concerned that investors could seek to avoid tax by removing assets from one endowment and placing them in another before each New Year, when gains typically would be accrued.

The Fund Association said that the changes “were a wise decision and a necessary step for the account to become an attractive alternative for investors.”

“Long term savings are something that should be stimulated. It would be positive if the government also suggested that investors could move existing holdings into the Investeringssparkonto in a useful way. Only then will the lock-in effects be overcome – which mean that investors do not look over old fund holdings becuase of fears over tax,” said said Pia Nilsson, managing director of the Association.

Peter Norman (pictured), minister for Financial Markets, said: “Long term savings are key to enabling households to build up economic buffers. This is important not least when the economic situation around us is uncertain. Investeringssparkonto offers big benefits to those who wish to save in stocks and funds. We are now making this even more attractive by suggesting a lower tax rate than in earlier proposals.”

The government is proposing that investors also be able to hold other financial instruments in the new account, such as options. It aims to bring the relevant legislation into force by 1 January 2012.

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