Skip to main content

LUP Student Papers

LUND UNIVERSITY LIBRARIES

Vilken vinst, vilken inkomst? - Det skatterättsliga förhållandet mellan resultatfördelningsavtal och carried interest i brittiska limited partnerships

Fridén, Pontus LU (2023) JURM02 20232
Department of Law
Faculty of Law
Abstract
Limited partnerships established in Jersey, Guernsey or England are com-plex, contractually constructed funds. The fund such partnerships form is based on a contractual basis, an agreement between the parties to the part-nership to operate for a common purpose – to acquire shares in unlisted companies in order to generate a return on the capital invested. These UK partnerships do not meet the criteria of the Swedish Income Tax Act's defi-nition of a foreign legal entity. From a Swedish tax perspective, they are instead regarded as, what in Sweden is called, simple companies.
An essential feature of the UK partnerships and many other similar private equity fund structures is that the fund's key executives are entitled to a spe-cial profit... (More)
Limited partnerships established in Jersey, Guernsey or England are com-plex, contractually constructed funds. The fund such partnerships form is based on a contractual basis, an agreement between the parties to the part-nership to operate for a common purpose – to acquire shares in unlisted companies in order to generate a return on the capital invested. These UK partnerships do not meet the criteria of the Swedish Income Tax Act's defi-nition of a foreign legal entity. From a Swedish tax perspective, they are instead regarded as, what in Sweden is called, simple companies.
An essential feature of the UK partnerships and many other similar private equity fund structures is that the fund's key executives are entitled to a spe-cial profit share (carried interest) in the result the fund may achieve. The special profit share is special because, above a certain level of performance, it greatly exceeds the return received by other investors in relation to their capital invested.
Over the past twenty years, the nature of this special profit share has been discussed in doctrine and tested in the courts. The question has no definitive answer anchored in specific legislation, nor has it been answered in concrete terms by the Supreme Administrative Court. Lower court practice shows a certain disharmony. In the pilot Nordic Capital case, the income was found not to constitute compensation for services. In the wake of this, many sub-sequent judgments resulted in the opposite conclusion - carried interest had been paid as compensation for work input. Other rulings ended in taxation under the so called 3:12-rules due to dividends on qualifying shares.
The latter judgments are in the overwhelming majority and appear to be an adjustment of the approach expressed by the Administrative Court of Ap-peal in the Nordic capital case. It must therefore, in the absence of legisla-tion and higher court decisions, be considered likely that taxation of carried interest currently takes place either as income category of service or as divi-dends on qualified shares under the 3:12-rules.
The origin of carried interest can be found in the fund parties' profit-sharing agreements. As a general rule, taxation should follow the parties' chosen allocation under civil law. Strong reasons are required to deviate from the agreement. Such an agreement within a British limited partnership should be accepted in the tax treatment. The Swedish Tax Agency's view in a position statement that certain investors had waived a profit to which they were ac-tually entitled is therefore inconsistent with established case law. According to the agreement, these investors were not entitled to the profit from the beginning and therefore could not have waived it. Even the Administrative Court of Appeal's recent practice regarding cases where carried interest is considered to have been paid as compensation for a performed service is difficult to reconcile with the consequence of the agreement, that no income transfer has taken place between the investors. Instead, the approved profit-sharing agreement should result in the income not being subject to service tax except on a flat-rate basis under the 3:12-rule.
Finally, it should be noted that what should be the outcome is a discussion, how the issue is actually resolved under current law is a legal reality. The fact that the current law is still relatively unclear due to the disharmony in the lower court case law, combined with the lack of specific legislation in the area and guiding precedents from the Supreme Court, does not negate the fact that how the issue has typically been answered recently in the lower court determines the direction in which the legal situation leans. (Less)
Abstract (Swedish)
Limited partnerships etablerade i Jersey, Guernsey eller England är kom-plexa, avtalskonstruerade fonder. Fonden sådana partnerskap bildar står på kontraktsrättslig grund, ett avtal mellan partnerskapets parter att verka för ett gemensamt ändamål – att förvärva andelar i onoterade bolag i syfte att generera avkastning på insatt kapital. Dessa brittiska partnerskap uppfyller inte rekvisiten i inkomstskattelagens definition av utländsk juridisk person. De betraktas ur svensk skattesynvinkel istället som enkla bolag.
Ett väsentligt inslag i de brittiska partnerskapen och i många andra liknande fondstrukturer inom private equity är att fondens nyckelpersoner berättigas en särskild vinstandel (carried interest) i det resultat fonden... (More)
Limited partnerships etablerade i Jersey, Guernsey eller England är kom-plexa, avtalskonstruerade fonder. Fonden sådana partnerskap bildar står på kontraktsrättslig grund, ett avtal mellan partnerskapets parter att verka för ett gemensamt ändamål – att förvärva andelar i onoterade bolag i syfte att generera avkastning på insatt kapital. Dessa brittiska partnerskap uppfyller inte rekvisiten i inkomstskattelagens definition av utländsk juridisk person. De betraktas ur svensk skattesynvinkel istället som enkla bolag.
Ett väsentligt inslag i de brittiska partnerskapen och i många andra liknande fondstrukturer inom private equity är att fondens nyckelpersoner berättigas en särskild vinstandel (carried interest) i det resultat fonden eventuellt lyck-as uppnå. Vinstandelen är särskild eftersom den, över en viss resultatnivå, vida överstiger avkastningen övriga investerare erhåller i förhållande till in-satt kapital.
Under de senaste tjugo åren har det i doktrin diskuterats och i domstolar prövats, vad för slags inkomst denna särskilda vinstandel utgör. Frågan har inget definitivt svar förankrat i särskild lagstiftning och har inte heller besva-rats konkret av HFD. Underrättspraxis visar på en viss disharmoni. I pilotfal-let Nordic capital-målet befanns inkomsten inte utgöra tjänsteersättning. I kölvattnet därpå renderade många efterföljande domar i motsatt slutsats – carried interest hade utgått som ersättning för arbetsinsatser. Andra domar slutade i beskattning enligt fåmansföretagsreglerna (3:12-reglerna) på grund av utdelning på kvalificerade andelar.
De senare domarna är i överväldigande majoritet och förefaller vara en juste-ring av synsättet kammarrätten gav uttryck för i Nordic capital-målet. Det får därför, i brist på lagstiftning och överrättsavgörande, konstateras vara sannolikt att beskattning av carried interest för närvarande sker antingen i inkomstslaget tjänst eller som utdelning på kvalificerade andelar enligt 3:12-reglerna.
Upphovet till carried interest står att finna i fondparternas resultatfördel-ningsavtal. Beskattningen ska i huvudregel följa parternas civilrättsligt valda fördelning. Starka skäl krävs för att frångå avtalet. Ett sådant avtal inom ett brittiskt limited partnership bör accepteras i den skattemässiga behandlingen. Skatteverkets uppfattning i ett ställningstagande om att de vissa investerare avstått från en vinst de egentligen var berättigade stämmer därför illa med fast rättspraxis. Dessa investerare hade enligt avtalet inte rätt till vinsten från början och kan därför inte ha avstått från densamma. Även kammarrättens praxis på senare tid beträffande de fall carried interest anses ha utgått som ersättning för utförd tjänst är svårförenlig med avtalets följd, att någon in-komstöverföring inte har ägt mellan investerarna. Istället bör det godkända resultatfördelningsavtalet leda till att inkomsten inte tjänstebeskattats föru-tom schablonmässigt enligt 3:12-reglna.
Avslutningsvis ska noteras att vad som bör bli det skatterättsliga utfallet är en diskussion, hur frågan faktiskt löses enligt gällande rätt är en juridisk rea-litet. Att gällande rätt alltjämt är relativt oklart på grund av disharmonin i underrättspraxis i kombination med avsaknaden av särskild lagstiftning på området och vägledande prejudikat från HFD, förtar inte det faktum att hur frågan typiskt sett besvarats på senare tid i underrätten avgör åt vilket håll rättsläget lutar. (Less)
Please use this url to cite or link to this publication:
author
Fridén, Pontus LU
supervisor
organization
alternative title
What profit, what income? - The tax law relationship between profit-sharing agreements and carried interest in UK limited partnerships
course
JURM02 20232
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
Skatterätt, Carried interest, Resultatfördelningsavtal, Limited partnership, särskild vinstandel, inkomstskatterättslig klassificering av limited partnership, legalitetsprincipen, verklig innebörd
language
Swedish
id
9143192
date added to LUP
2024-01-18 11:27:26
date last changed
2024-01-18 11:27:26
@misc{9143192,
  abstract     = {{Limited partnerships established in Jersey, Guernsey or England are com-plex, contractually constructed funds. The fund such partnerships form is based on a contractual basis, an agreement between the parties to the part-nership to operate for a common purpose – to acquire shares in unlisted companies in order to generate a return on the capital invested. These UK partnerships do not meet the criteria of the Swedish Income Tax Act's defi-nition of a foreign legal entity. From a Swedish tax perspective, they are instead regarded as, what in Sweden is called, simple companies. 
An essential feature of the UK partnerships and many other similar private equity fund structures is that the fund's key executives are entitled to a spe-cial profit share (carried interest) in the result the fund may achieve. The special profit share is special because, above a certain level of performance, it greatly exceeds the return received by other investors in relation to their capital invested. 
Over the past twenty years, the nature of this special profit share has been discussed in doctrine and tested in the courts. The question has no definitive answer anchored in specific legislation, nor has it been answered in concrete terms by the Supreme Administrative Court. Lower court practice shows a certain disharmony. In the pilot Nordic Capital case, the income was found not to constitute compensation for services. In the wake of this, many sub-sequent judgments resulted in the opposite conclusion - carried interest had been paid as compensation for work input. Other rulings ended in taxation under the so called 3:12-rules due to dividends on qualifying shares. 
The latter judgments are in the overwhelming majority and appear to be an adjustment of the approach expressed by the Administrative Court of Ap-peal in the Nordic capital case. It must therefore, in the absence of legisla-tion and higher court decisions, be considered likely that taxation of carried interest currently takes place either as income category of service or as divi-dends on qualified shares under the 3:12-rules. 
The origin of carried interest can be found in the fund parties' profit-sharing agreements. As a general rule, taxation should follow the parties' chosen allocation under civil law. Strong reasons are required to deviate from the agreement. Such an agreement within a British limited partnership should be accepted in the tax treatment. The Swedish Tax Agency's view in a position statement that certain investors had waived a profit to which they were ac-tually entitled is therefore inconsistent with established case law. According to the agreement, these investors were not entitled to the profit from the beginning and therefore could not have waived it. Even the Administrative Court of Appeal's recent practice regarding cases where carried interest is considered to have been paid as compensation for a performed service is difficult to reconcile with the consequence of the agreement, that no income transfer has taken place between the investors. Instead, the approved profit-sharing agreement should result in the income not being subject to service tax except on a flat-rate basis under the 3:12-rule.
Finally, it should be noted that what should be the outcome is a discussion, how the issue is actually resolved under current law is a legal reality. The fact that the current law is still relatively unclear due to the disharmony in the lower court case law, combined with the lack of specific legislation in the area and guiding precedents from the Supreme Court, does not negate the fact that how the issue has typically been answered recently in the lower court determines the direction in which the legal situation leans.}},
  author       = {{Fridén, Pontus}},
  language     = {{swe}},
  note         = {{Student Paper}},
  title        = {{Vilken vinst, vilken inkomst? - Det skatterättsliga förhållandet mellan resultatfördelningsavtal och carried interest i brittiska limited partnerships}},
  year         = {{2023}},
}