STOCKHOLM, March 22 (Reuters) - Sweden is to end loopholes used by private equity firms and others to avoid tax by borrowing money from related firms in low-tax or no-tax jurisdictions, the Finance Ministry said after scandals related to private equity firms in the health sector.
It said the proposal would increase tax revenues by 6.3 billion Swedish crowns ($936 million), but that this could be neutralised by a reduction in the corporate tax level.
"We cannot accept the aggressive and doubtful tax arrangements which we have seen, among others, by some risk capital companies operating in the welfare sector," Finance Minister Anders Borg said in a statement.
Media have criticised private equity firms which make profits in the tax-funded health sector at the same time as they use tax planning to reduce their bills to the state.
The scheme the government wants to stop is where a company in Sweden borrows money from a company established in a low tax jurisdiction at high rates of interest.
The company based in Sweden can reduce its tax bill by setting off interest payments against profits while the related entity in the 'tax paradise' pays little or no tax.
Under the new rules interest payments can be tax deductible if the receiver of the payments has a 10 percent or higher tax rate but not if the sole purpose is tax avoidance.
It will no longer be possible to make tax deductions for interest payments to companies in low-tax countries outside the EU, Iceland, Norway and Lichtenstein which Sweden has no tax agreement with.
Risk capital and private equity companies have become increasingly active in the public sector in Sweden, owning companies which run homes for the elderly, clinics and schools.
The trend has sparked criticism that Sweden's traditional welfare system is being undermined.
Critics say any profits from tax payers' money should be ploughed back into the welfare sector.