Hungry for Estonian taxes

Last week the Swedish government suggested that it might seek direct taxation of the profit of subsidiaries of home companies based in tax havens, among which were named Ireland, Switzerland, and Estonia.

According to the daily Aripaev, the legal amendments under consideration in Sweden may lead to double taxation for Swedish financial institutions that have subsidiaries in Estonia, in particular Hansabank, Uhisbank, SEB, and Swedbank.

The proposal allegedly does not affect enterprises in other spheres of the economy.

The Estonian Finance Ministry said it has received no official information from Sweden regarding the tax amendments.

Lemmi Oro, head of the tax policy department at the ministry, said that Estonia had concluded an agreement on avoiding double taxation with Sweden. This, he said, ruled out the possibility that Swedish companies operating in Estonia could be taxed twice.

The purpose of the new rules would be to prevent the change of profit earned in Sweden into tax-free capital income. According to the proposed amendments, the rules would apply to the profit, dividends, interest, and royalties earned from subsidiaries.

"Swedish banks would thus be automatically subject to a tax on the profit of their Estonian subsidiaries, without the profit having been paid out to the Swedish parent company," said Christian Axelsson, a tax expert at Rodl & Partner.

Oro explained that if Sweden wishes to change something, it must officially notify Estonian authorities that it is no longer implementing the agreement and indicate the reasons.

"I haven't received any notification from Swedish authorities. Since Sweden after all is a country with democratic traditions, we have no reason to think that it could be acting in any other manner," Oro said.