Sweden: Parliament approves amendments to interest deduction limitation rules
Amendments will take effect on January 1, 2026
The Swedish Parliament on November 19, 2025, approved amendments to the Swedish interest deduction limitation rules to comply with EU law, following previous decisions by the Court of Justice of the European Union (CJEU). These changes specifically address Sweden's interest limitation regime without altering rules from the Anti-Tax Avoidance Directive (ATAD).
Under the current regime, interest deductions are allowed if the beneficial owner of the interest income within the group is resident within the European Economic Area (EEA) or a state with which Sweden has a tax treaty not limited to certain income, or is subject to a corporate tax of at least 10%. However, deductions are denied if the loan's primary purpose is to secure a substantial tax benefit for the group.
Key amendments include:
- A specific rule for cross-border loans within the EEA allows deductions for interest payments made to group companies in an EEA country (other than Sweden). However, deductions may be denied if the arrangement is considered “artificial” and primarily aimed at securing a significant tax advantage for the group. The purpose of these changes is to ensure that restrictions on interest deductibility apply only to “purely artificial arrangements” that lack economic substance and are mainly structured for tax avoidance.
- The acquisition rule (for interest on loans related to internal share acquisitions) will only apply to debts where the interest recipient is a Swedish company or a company outside the EEA. For EEA cross-border loans, the new "artificial arrangement" test applies instead.
- More generally, the specific interest deduction limitation rules remain unchanged for loans when the interest recipient is in Sweden or outside the EEA. Interest deductions could still be denied if the primary purpose of obtaining the loan is to obtain a tax advantage.
The amendments align with CJEU case law and will take effect on January 1, 2026, for tax years beginning after December 31, 2025.
Read a December 2025 report prepared by KPMG’s EU Tax Centre