Swedish Investment Fund Association rejects savings account proposal

Proposals put forward by Sweden’s Ministry of Finance for a new type of investment savings account have been rejected by the Swedish Investment Fund Association, blaming excessive complexity and the danger of investors being hit by unacceptably high tax rates.

While the department has calculated that the effective tax rate would be 22.2%, the Association’s own back testing calculations suggest that the tax rate could have hit up to 120% for long term investors in mixed asset funds using the account in the past 10 years, according to the rules currently being proposed.

“The Association believes that the tax proposals being discussed show that it would be wise of the government to instead of complicating the tax system take a holistic approach to capital taxation to develop simple and stable rules,” said Pia Nilsson, managing director.

Instead, the Association – which has long campaigned for an alternative savings method beyond the insurance based ones that characterise the Swedish market – said the focus of the new account should be to enable fund investments to be switched without risking tax rates giving rise to involuntary lock in effects.

It said the analysis by the department built on a single example giving rise to the 22.2% tax rate, which while attractive lacked reference to further examples based on varying conditions and future scenarios.

Besides long term investors in a mixed asset fund paying an effective 120% tax rate, the Association points to other examples of its own, such as the investor in money market funds paying an effective rate of 55%, or Sweden equity funds, with a rate of 24%.

The average negative return of Global funds over the past decade would not have saved investors from a request to pay tax, despite the contraction in their underlying capital. For example, the investor who put in Sek10,000 in a Global fund in 2001 would, under the proposed investment savings account rules, have seen their capital shrink by 28%. Under existing rules that loss would have been mitigated by the capital gains tax regime, in which losses can be deducted against tax.

One of the problems with the proposed new account rules is that it suggests a sharp rise in the flat tax rate, which in turn suggests investors would be required to take on more risk to obtain the equivalent return after tax compared to the current regime. But that also means a higher risk of losses. The Association said it was not fair on investors to be forced by tax changes to take on higher risk at the same time that they did not have the ability to deduct losses.

“It is not reasonable that the state should have a secure and high annual income and that investors should take all the risk,” said Pia Nilsson.


Close Window
View the Magazine

I also agree to receive editorial emails from InvestmentEurope
I also agree to receive event communications for InvestmentEurope
I also agree to receive other communications emails from InvestmentEurope
I agree to the terms of service *

You need to fill all required fields!