Proposed tax legislation by the Swedish government, aimed at subsidiaries of Swedish banks in tax havens such as Estonia, may be no more than empty threats.
Reports last month said the Swedish Ministry of Finance was considering legislation which would tax the profits of subsidiaries of banks operating in tax-zones such as Estonia, Ireland, and Switzerland
The proposed amendments to existing tax legislation would primarily influence the cash flow of Swedbank and SEB Group, the owners of Baltic financial leaders Hansabank and Eesti Uhispank, respectively.
The amendments, if passed, would attempt to avoid transfer of major tax revenues into countries with favorable income tax rules, such as Estonia. Tax experts from Sweden claim that would practically mean double taxation.
Currently the Swedish government receives revenue only from dividend income paid out to the Estonian banks' owners in Sweden. The Ministry of Finance reportedly wants to tap into subsidairies' taxable income before dividends are paid out.
Estonia has a 26 percent income tax for distributed profits. Under the proposed amendments, the profits of Hansabank and Uhispank will be taxed in Sweden as well.
Rumors quickly spread that, if the amendments were adopted, Swedish companies based in Estonia might simply pack their bags and shift headquarters to Lithuania or Latvia.
Latvia is planning to lower its profits tax to 15 percent from the current 22 percent, while Lithuania already has the 15 percent tax rate.
The subsidiary banks remained cool about the possible changes.
Evelin Pull, spokeswoman for Eesti Uhispank, the second-largest bank in the country, stated the possible tax changes will not affect the bank's operations.
"Eesti Uhispank is not going to move its headquarters to Latvia, we'll stay here. We belong to SEB, and SEB has always paid its taxes correctly and intends to do so in the future," said Pull.
Hansabank also said that relocation of its headquarters to Latvia or Lithuania in connection to the changes in the Swedish tax regulation was not an option. "Hansabank has not yet considered the problem (reported by Swedish press)," added Ando Noormets, spokesman for Hansabank in Estonia.
Although the news of the possible double taxation, originally reported by Dagens Industri, a Swedish paper, caused a major stir in Estonia, in Sweden it hardly qualified as a sensation.
Bo Sellstedt, associate professor from the Economic Research Institute at the Stockholm School of Economics, said he never heard of the issue until now. Describing the Swedish tax laws, he said there hadn't been any big changes in tax regulations recently.
"In my opinion Swedish tax regulations are quite liberal," said Sellstedt.
Ingela Willfors, director of the international tax department at the Swedish Ministry of Finance, said the whole issue was being blown out of proportion.
"It was only a memorandum. It will have to go through two institutions including the parliament to become a law," said Willfors, adding that the proposed amendments are a part of the tax reform the ministry is now working on. The reform would make the country's tax system more liberal in general, according to Willfors.
Willfors also said that the idea to tax subsidiaries of Swedish businesses abroad concerns not only banks but any kind of an enterprise operating on the basis of low-taxed financial income.