Swedish private-equity firm Nordic Capital said on Thursday its employees would appeal a ruling by a Swedish court that could lead to top managers in the industry facing a total extra tax bill of around 2.3 billion crowns ($263 million).
In April, Sweden’s tax authority won a multi-year fight with the private equity industry over how employees are taxed.
The Swedish Administrative Court of Appeals ruled that part of the earnings of around 85 individuals who work or have worked for private-equity firms such as Nordic Capital, Altor, EQT and Segulah should be taxed as salary, not as capital gains, as they have been.
Nordic Capital said in a statement it was appealing because it thought the ruling misunderstood facts in the case and contradicted previous rulings.
Top income tax rates in Sweden, which is one of Europe’s centres for private equity, are around 60 percent, among the highest in the world, and kick in for incomes over $75,000 a year. Capital gains tax is 25 to 30 percent and is not progressive.
Private-equity fund managers get a salary from their company and also take a share of the profits from their investments – so-called carried interest. The Swedish Tax Agency has argued carried interest is also a kind of salary.
Nordic Capital said partners at NC Advisory, which manage Nordic Capital funds, had been hit particularly hard by the April decision because all carried-interest earnings have been re-defined as salary under the April court rulings.
Partners at other private-equity firms had to pay higher tax on only part of their carried-interest earnings under the April rulings because of technical differences in the way the funds were set up.
The private-equity industry wants all carried interest to remain taxed as capital rather than salary, and Nordic Capital said a general appeal was likely at a later date.
The Supreme Administrative Court must grant leave to appeal before cases can be heard.
The ruling covers tax years 2007 to 2012. Swedish Tax Agency legal department chief Tomas Algotsson, speaking in April, said it would mean an additional 2.3 billion crowns in taxes for the state in the near term.