Investment Savings Account : A Legislative Proposal on Swedish Capital Taxtion for Private Investors

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Bachelor’s thesis in Commercial and Tax Law

Author: Pontus Ternström

Tutor: Assoc. Prof. Dr. Dr. Petra Inwinkl Jönköping 2011-05-19

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Bachelor’s Thesis in Commercial and Tax Law

Title: Investment Savings Account Author: Pontus Ternström

Tutor: Assoc. Prof. Dr. Dr. Petra Inwinkl Date: 2011-05-19

Subject terms: Tax Law, Investment Savings Account, Endowment Assurance

Abstract

In December 2010 the Treasury Department presented a proposal contain-ing change in regard of current endowment assurance laws and an alterna-tive way of saving financial instruments called Investment Savings Account. The purpose of the proposal is to make investing in financial instruments easier for private investors and to prevent reigning tax evasion regarding endowment assurances. The objective of this thesis is to determine if the proposal will have the desired effect of making investments in financial in-struments easier for private investors. The purpose is also to determine whether the changes imposed by the proposal are relevant and adequate. The proposal suggests that the Investment Savings Account should be sub-jected to flat-rate tax instead of taxation on capital profit upon divestment of financial instruments, which is the case today. By doing this the investor does not have to calculate expenditure costs of investments making declar-ing tax return to the Tax Agency easier. The proposal also includes change regarding endowment assurance laws stating that deposits and withdrawals should affect the capital base of the assurance preventing tax evasion. Fur-thermore the proposal suggests an elevation of tax on endowment assur-ances conform to the tax-rate of the Investment Savings Account.

The proposal shows good intentions since the Treasury Department has ac-knowledged that something has to be done concerning taxation on capital. However, the execution is in some areas quite poor. Excessive measures are taken in comparison to what is achieved. Calculations are complicated, mak-ing capital profit and taxation unpredictable for private investors. Elevatmak-ing taxation on endowment assurances within a Swedish tax system which is al-ready high might impede the financial market.

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1 Introduction

1.1 Background

The Swedish tax-rate on capital profit of 30 %1_{is generally high in comparison to other EU} member states.2_{The Swedish legislator’s aim, concerning taxation, is that all income should} be taxed equally regardless of how it is acquired. This however, is if not impossible, at least not very probable to achieve.3_{The legislator has therefore, decided on a tax system which} the legislator argues lead to an as equal result as possible, leaving as little room for inaccu-racy as possible. Currently the main rule is that, tax on capital is levied only on actual profit made on investments upon divestment.4

Investors on the Swedish financial market are not necessarily only stock brokers, but pri-vate investors saving their money in financial instruments, such as shares and equity funds.5 An equity fund is an economical portfolio containing financial instrument which a credit institute provides so that investors can buy shares in the portfolio. When investors sell shares in equity funds, the credit institute providing the fund is obliged to report a state-ment of earnings for the investor to the Swedish Tax Agency6_.7_{This leads to very few} complications when calculating tax for the individual, since the credit institute has kept track and reported both purchase and selling price. Whereas when dealing with shares it becomes more problematic,8_{since it is up to the private investor to report capital profit} and loss to the Tax Agency.9_{If investors do not actively take part in their investments this} could lead to the possession of shares continuing for an expanded period of time, resulting in people forgetting at what rate they bought the share. Also remembering selling price can be difficult when selling in January and having to report to the Tax Agency in April the

fol-1_{Inkomstskattelagen (1999:1229), Chapter 65 Section 7.}

2_{Svensson, U, Kapital, gåva & förmögenhet skatteregler & skatteplanering, 2 ed., Björn Lundén Information}

AB , 2004, Näsviken, p. 10.

3_{Lodin, S-O, Lindencrona, G, Melz, P, Silferberg, C, Inkomstskatt – en läro- och handbok i skatterätt Del 1,}

13 ed., Studentlitteratur AB, 2009, Lund, p. 177.

4_{Inkomstskattelagen (1999:1229), Chapter 41 Section 2.}

5_{Finansdepartementet, Schablonbeskattat investeringssparkonto och ändrad beskattning av}

kapitalförsäkring, 2010, p. 39.

6_{In Swedish Skatteverket.}

7_{Lag (2001:1227) om självdeklaration och kontrolluppgifter, Chapter 10 Section 8.} 8_{Tivéus, U, Skatt på kapital, 13 ed., Nordstedts Juridik AB, 2010, Visby, p. 90.}

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lowing year. This creates a situation, where the investor has to keep track of purchase and selling price, which might make some investors reluctant to trade with shares, leading to people not investing their money or not selling old shares. Consequently, a relatively large amount of capital is not put into the financial market, creating a pin down effect.10

The Swedish Treasury Department11_{is of the opinion that existing legislation on taxation} of capital needs a re-write or even an alternative solution. The reason for this is that the Swedish legislator strives for legislation on taxation of capital to be easily understood by the private investor.12_{The Treasury Department argues that legislation on endowment} assur-ances to be modified since current legislation leads to tax planning and tax evasion.13 Con-sequently, the Treasury Department presented a memorandum containing a proposal on a new law and format of saving financial instruments called Flat-rate Taxed Investment Savings Account and Changes Concerning Current Regulations on Endowment Assurances14_{(the proposal) on} the 9th_{of December 2010.}

The purpose of the proposal is to provide an alternative way of saving financial instru-ments, which is easier to understand and to use for private investors. The main issue with current legislation is that declaring capital profit and loss to the Tax Agency can be trouble-some for private investors leading to false information being presented to the Tax Agency. The proposal also aims to rewrite regulations concerning endowment assurances to be in conformity with the new proposal on Investment Savings Account eliminating reigning tax evasion in endowment assurances.15

1.2 Objective and Delimitation

The aim of this thesis is to evaluate if measures taken in the proposal on the Investment Savings Account from the Treasury Department are relevant and adequate in comparison

11_{In Swedish Finansdepartementet.}

12_{Prop. 1999/2000:2, Inkomstskattelagen.}

14_{In Swedish Schablonbeskattat Investment Savings Account och ändrad beskattning av}

kapitalförsäkring.

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to current tax legislation and to what it achieves. The objective is also to determine whether the proposal will have the desired effect of making investing in financial instruments easier and to whom the Investment Savings Account is addressed. Regulations regarding qualified shares16_{, limitedly tax liable persons}17_{and currency trade are not dealt with in this thesis.} Neither are questions concerning state financial results of the proposal discussed. Since the proposal is currently being evaluated by advisory bodies of the Swedish government new information concerning the proposal might be presented while this thesis is produced. In-formation regarding the proposal presented closer than two weeks prior to the filing date of this thesis is therefore not taken into consideration in this thesis.

1.3 Method and Material

Three methods are applied in this bachelor’s thesis; the traditional legal method, the de-scriptive method and the comparative method. The traditional legal method refers to the studying of legal sources used to determine the legal system.18_{The hierarchy of Swedish} le-gal sources is; legislation, government bill, case law and literature.19_{The thesis is structured} so that the proposal and current legislation are placed in different chapters creating clear-ness and responsiveclear-ness.20_{The second chapter of this thesis focuses on the proposal made} by the Treasury Department, and is therefore to a large extent focused on the descriptive method,21_{since the proposal is the centre of this thesis describing it is of great importance.} Chapter three and four of this thesis focus on relevant current Swedish tax legislation in comparison to the proposal and therefore the comparative method22_{is mainly applied.} Comparing the proposal with current legislation is crucial to the objective of this thesis, but also adding input from governmental institutes and agencies make a difference when giving an objective view on the subject. Also articles from users of current legislations are being used even though they do not have high judicial status since the proposal is relatively new.

16_{In Swedish kvalificerade andelar.} 17_{In Swedish begränsat skattskyldiga.}

18_{Zweigert, K, Kötz, H, Introduction to Comparative Law, Oxford University Press, 1998, Oxford and New}

York, pp. 35-36.

19_{Sandgren, C, Rättsvetenskap för uppsatsförfattare, 2 ed., Nordstedts Juridik AB, 2007, Stockholm, p. 37.} 20_{Jensen, U, Rylander, S, Lindholm, P H, Att skriva juridik – regler och råd, 4th ed., Iustus Förlag, 2006,}

Uppsala, pp. 26-28.

21_{Strömholm, S, Rätt, rättskällor och rättstillämpning – en lärobok i allmän rättslära, 5th ed., Nordstedts}

Juri-dik AB, 1996, Stockholm, pp. 486-487.

22_{Zweigert, K, Kötz, H, Introduction to Comparative Law, Oxford University Press, 1998, Oxford and New}

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Finally, the analysis is presented in chapter 5, where the facts which are given throughout the thesis are discussed and concluded.

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2 Presentation of the Proposal

2.1 General Prerequisites

Private investors may at times find reporting and declaring capital income to the Tax Agen-cy difficult since calculating expenditure cost of financial instruments can be complicated. This creates a situation where private investors produce incorrect and/or untruthful infor-mation to the Tax Agency. Some tax payers therefore end up paying too much tax while others may pay too little creating a situation where the income of tax for the government and the tax base not being predictable and correct.23_{The Treasury Department has} there-fore presented a proposal on an account in which an investor can keep his financial in-struments called an Investment Savings Account. The proposal allocates a greater respon-sibility concerning declaration on capital income to credit institutes, making declaration eas-ier for the investor. If accepted, the proposal is scheduled to come in to effect in January of 2012 and will be an optional way of saving financial instruments for investors.24

2.2 Setting up an Investment Savings Account

An Investment Savings Account is intended for natural persons or a decedent estate, in other words for private investors, although several natural persons cannot share an ac-count.25_{The reason for that is the demand for an account which more than one person can} control is deemed as low and would need complex legislation. However, there are no ob-stacles preventing one individual from having several accounts. The proposal states that in-dividuals are not allowed to set up accounts by themselves but need a credit institute26_to provide such services. The institute does not have to be able to provide every single possi-ble service which might occur on the financial market. Accordingly it is permitted for the institute to make agreements with other institutes to provide the remaining services which they cannot provide themselves. In other words the credit institute which the individual has an agreement with may allow other institutes to provide certain services, but they cannot

24_{Ibid., p. 45.} 25_{Ibid., p. 43.}

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renounce their obligations towards their client.27_{The proposal does not state anything} re-garding the cost which the agency may charge

2.3 Definition of the term “Financial Instrument”

2.3.1 Permitted Financial Instruments

The Treasury Department has decided, from a taxation perspective that all types of finan-cial instruments should not be allowed in an Investment Savings Account. Only what is re-ferred to as investment assets are accepted. To distinguish investment assets from unautho-rized assets, the Law on Securities Market28_{has been used to define financial instruments} which would create the ground rules of what a permitted investment is. The law states that financial instruments consist of transferable securities, money-market instrument, fund shares and financial derivative instruments.29

Even though a financial instrument falls under the definition mentioned above, it still has to be listed for trade on a regulated market. A regulated market is “a multilateral system operat-ed and/or managoperat-ed by a market operator, which brings together or facilitates the bringing together of mul-tiple third-party buying and selling interests in financial instruments […] in a way that results in a con-tract”30_{. A market of this sort is surrounded by a substantial netting of laws and regulations.} Such regulations contain rules for how trade should be carried out and how thorough the companies’ information obligation is, etc. This assures individual investors that trade within such a market is well regulated. To provide such a market place permission is needed, which is granted by the Swedish Financial Supervisory Authority31_.32_{An example of a} mar-ket of this sort is the Stockholm Stock Exchange33_{. Financial instruments within such a} market are organized in a way, which make market-value easily affirmable. The ownership of shares is usually divided between large numbers of investors, leading to no single or a few investors being able to influence or increase the value of the company or its shares.

Al-27_{Finansdepartementet, Schablonbeskattat investeringssparkonto och ändrad beskattning av}

kapitalförsäkring, 2010, pp. 44-45.

28_{Lagen (2007:528) om värdepappersmarknaden.} 29_{Ibid., Chapter 1 Section 4.}

30_{EUT L 145, 30.4.2004, p. 10. art. 4.14 (Celex 32004L0039).} 31_{In Swedish Finansinspektionen.}

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so financial instruments traded on a regulated market outside of the European economic area, would be permitted as long as they meet the criterion stated earlier.34

2.3.2 Unallowable Financial Instruments

Financial instruments which are not investment assets are referred to as unauthorized as-sets, with the exception of investment funds. Such unauthorized assets are thus financial instruments which are not being traded on a regulated market. An example of a market, which is not allowed, is a multilateral trading facility (MTF).35_{A MTF is “a multilateral system,} operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments [...] in a way that results in a contract”36_{. Examples of markets} like these are First North and Aktietorget. MTFs per se are not unauthorized, but financial instrument which are traded only on such markets are. The reason for this is that MTFs may be operated by private financial firms, creating their own rules, which are not as strict as the ones of a regulated market. Smaller companies could then enter a MTF, the owners could transfer their share holdings to an Investment Savings Account and through under-priced transactions from an affiliated company transfer untaxed assets to the company which has entered the MTF and by doing so increase the company’s value and its shares market-value.37_{This creates a situation where the market-value of financial instruments’ is} difficult to determine, which is something that could lead to problems when using a flat-rate tax in an Investment Savings Account. Shares which are not traded on either a regu-lated market or a MTF should not be permitted in an Investment Savings Account, since affirming market-value of such instruments is difficult.38_{Finally should be stated that ready} money is allowed in an Investment Savings account. The account holder should be allowed to withdraw and deposit assets, pay fees and consume etc. There is no suggested limit on how much money should be allowed in an account.39

34_{Lagen (2997.528) om värdepappersmarknad, Chapter 1Section 5.}

36_{EUT L 145, 30.4.2004, p. 10. art. 4.15 (Celex 32004L0039).}

38_{Ibid., p. 49.} 39_{Ibid., pp.49-50.}

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For practical reasons it is not possible to preclude all unauthorized assets from an Invest-ment Savings Account and even if it is possible it is not very appropriate. An example of this is that an asset which is acquired from its origin, such as emitted shares, which are un-authorized assets, may be kept in the Investment Savings Account for up to 60 days if after 30 days it is clear that the asset is going to transform into an investment asset. This could be accomplished if the company which emitted new shares is being listed on a regulated market.40_{If the assets do not become investment assets, they have to be removed} other-wise the Investment Savings Account will cease to exist and become a conventional savings account subjected to conventional tax41_{. It is expected of the investor to keep track of} this.42

2.3.3 Memorandum Appendix

A couple of advisory bodies pointed out that there are certain regulated markets which fo-cus on small and medium sized companies. These regulated markets do not have stricter regulations concerning the spreading of ownership than MTFs. The risk of tax evasion should therefore be regarded as possible also on regulated markets,43_{not allowing financial} instruments from MTFs into an Investment Savings Account would be discriminatory from a competition perspective.44_{The Treasury Department has therefore decided on} changing regulations stated in the proposal through a memorandum appendix published on the 6th_{of April 2011. The appendix changes the proposal so that also financial instruments} traded on MTFs are allowed. However, if an investor controls more than 10 % of the votes in a company either by himself or together with kindred people45_{either directly or} indirect-ly it should not be allowed in an Investment Savings Account. It should then be taxed in

41_{What is referred to as conventional tax or taxation in this thesis, is taxation upon divestment of financial}

in-struments. The tax-rate of conventional taxation is 30 % of the actual capital profit after deduction of ex-penditure costs.

43_{Finansdepartementet, Investeringssparkonto, Tilläggspromemoria, 2011., p. 2.} 44_{Ibid., pp. 2-3.}

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the conventional way upon divestment.46_{Since, if one or a few investors could manipulate} the share value, the market-value is not as predictable and affirmable as desired.

The amount of unauthorized assets will, due to the change, not be as common as it would have been earlier. The Treasury Department has still decided to change the amount of days unauthorized assets are allowed in an Investment Savings Account. The 60-day limit should be calculated from the turn of the quarter in which the assets have been registered in the account. The reason for this is that the credit institute has to review the account upon ba-lancing it every quarter. In connection with the baba-lancing it is also appropriate for the cre-dit institute to review if any assets have become unauthorized and report this to the inves-tor. By doing this, the risks of an account being canceled due to unauthorized assets are deemed as low.47

2.4 Transactions to and from an Investment Savings Account

Assets within an Investment Savings Account shall be subjected to flat-rate tax, capital profit and loss is therefore not subjected to tax.48_{Consequently it could be quite profitable} from a tax perspective to transfer assets with latent capital profit which would be subjected to conventional taxation into an Investment Savings Account, since the realization of the capital profit would not be taxed there, or at least the tax could be substantially lower.49_An example of a transaction of this sort is if an individual gives an asset with latent capital profit to an Investment Savings Account-holder, where the profit is realized. To prevent this from occurring, which could lead to a lowering of the tax base and in fact serious tax evasion, it is important that only assets which have been traded at a market-value price are transferred to and from an Investment Savings Account. Accordingly, only assets which have been traded through buying, swapping or other acquisitions where the risk for false price setting is as little as possible are permitted.50_{Neither is it permitted to transfer assets} from an Investment Savings Account to an account which is not an Investment Savings Account. The reason for this is that when assets are transferred to an account which is not an Investment Savings Account the potential capital profit of the assets has to be

estab-46_{Finansdepartementet, Investeringssparkonto, Tilläggspromemoria, 2011, p.2-3.} 47_{Ibid., pp. 4-5.}

49_Ibid. 50_{Ibid., p. 51.}

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lished. This would command extensive work to establish expenditure cost, which is not in conformity with the aim of making investments in financial instruments easier.51

To further secure the market-value price setting, it is not permitted for two individuals or an individual and a judicial person to trade amongst themselves without a middleman. This since without a middleman such as a credit institute, there is no control of the selling price. This would make it easy to manipulate the market-value of the assets creating a situation where tax cannot be levied.52_{Transactions between two Investment Savings Accounts is} easier to control and do not result in tax loss since they are not taxed upon profit, but upon possession and should be permitted.53

Financial instruments that are investment assets which the Investment Savings Account-holder has acquired directly from the one who has emitted them should be permitted in an Investment Savings Account. An example of a transaction like this is if an investor own shares in a company and the company decides to emit new shares.54_{However, suppose that} the investor has 50 shares in a company in his Investment Savings Account and an addi-tional 50 shares in a convenaddi-tional savings account when the company either emits new shares or if the company gives out new shares through merger only half of the new shares are permitted in the Investment Savings Account.55

2.5 Closing and Canceling an Investment Savings Account and

the Information Obligation

2.5.1 Closing and Canceling an Investment Savings Account

Closing an Investment Savings Account at the wrong time or having ones Investment Sav-ings Account canceled can have major tax effects, since the Investment SavSav-ings Account is only a tax construction. That means that the actual account which the financial instruments are kept in is a regular savings account, the Investment Savings Account merely provides a different taxation method. Closing or canceling an Investment Savings Account when still keeping financial instruments in it thus lead to latent capital profit being taxed in the

con-51_{Finansdepartementet, Schablonbeskattat investeringssparkonto och ändrad beskattning av}

52_Ibid. 53_{Ibid., p. 52.} 54_{Ibid., p. 56.} 55_{Ibid., pp. 56-57.}

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ventional way upon divestment of capital profit. However, it should be possible to close an Investment Savings Account if both the credit institute and the investor agree upon it.56_It is, as mentioned in chapter 2.4, not possible to transfer investment assets from an Invest-ment Savings Account to another account which is not an InvestInvest-ment Savings Account. To maintain this ground rule, it is not permitted to close an Investment Savings Account while it contains investment assets. The result of closing or canceling an Investment Savings Ac-count is that it becomes a normal acAc-count and is therefore subjected to conventional taxa-tion, by extension this means that the investment assets have been transferred from an In-vestment Savings Account to an account that is not, which as stated in chapter 2.4 is not al-lowed.57

2.5.2 Information Obligation

The credit institute should inform the Investment Savings Account-holder of how the ac-count is taxed, how tax is levied and any fees which might occur. Information should also be presented about what the difference is between investment assets and unauthorized as-sets and how these are treated within an Investment Savings Account.58_{As earlier stated,} unauthorized assets which are kept in an Investment Savings Account must be discarded within a certain time frame. It cannot be expected of an investor to continuously keep track of if an asset has changed its nature into an unauthorized asset or not. To prevent an In-vestment Savings Account from being canceled due to there being unauthorized assets in it, the credit institute has been imposed with an obligation to inform the investor of such circumstances. This information should be submitted to the Investment Savings Account-holder at least 5 days prior to the 30-day limit, when the unauthorized assets have to be discarded form the account.59_{In other words 25 days after the unauthorized assets have} en-tered the account. If the unauthorized assets are not discarded after the 30-day limit the In-vestment Savings Account shall be canceled.60_{Failure by the credit institute to inform the} investor of the 5-day limit is per se an offence of the regulations regarding Investment Sav-ings Account, but does not lead to cancelation of the account. The investor’s failure to

dis-56_{Finansdepartementet, Schablonbeskattat investeringssparkonto och ändrad beskattning av}

57_{Ibid., p. 75.} 58_{Ibid., p. 77.} 59_{Ibid., p. 78.} 60_{Ibid., p. 77.}

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card the unauthorized assets is however an offence which leads to cancelation of the ac-count, since the information obligation is only to help the investor. 61_{It is still expected of} the investor to keep track of his investments.

2.6 Tax Calculation

An Investment Savings Account is not subjected to conventional tax, but to a flat-rate tax62_{. To calculate taxation of an Investment Savings Account, when capital profit is not} being taxed, the standard revenue of the account has to be established. The standard reve-nue is based on the capital base of the Investment Savings Account multiplied by the Gov-ernment Borrowing Rate63_{(GBR) plus 0.75 %.}64_{The Treasury Department has decided} that to achieve a correct capital base, the account should be balanced four times a year and should take place at the beginning of every quarter of the year. Even though balancing the account more often creates better flexibility between the size of the standard revenue and the alteration in value of the assets, it also brings greater complexity to the calculation and its predictability.65_{Balancing the account four times a year also might bring a larger} admin-istrative cost than just balancing it once a year, but that cost is deemed as reasonable in comparison to the aim of flexibility.66_{To explain the calculation of the capital base it has to} be divided into four different parts. The following assets’ market-value makes up the capi-tal base:

Part one consists of financial instruments which at the beginning of every quarter during the calendar year are kept in the account, unauthorized assets should not be taken into con-sideration.67_{The second part is sums of ready money which are put into the account during} the year. By letting ready money which are put into an account affect the capital base, the account-holder does not benefit from taking money out of the account before balancing

62_{In Swedish schablonbeskattning.} 63_{In Swedish statslåneränta.}

65_{Ibid., p. 84.} 66_Ibid. 67_{Ibid., p. 83.}

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the account and then putting them back in after the balancing of the account.68_The Trea-sury Department points out that only “new” money should affect the account, therefore should interest and dividends which are kept in the account not affect the capital base. Nei-ther should ready money which is transferred from anoNei-ther Investment Savings Account by the same investor.69_{The third part consists of investment assets which are transferred to} the Investment Savings Account from an account which is not an Investment Savings Ac-count. When doing so, it should be the market-value of the asset that should increase the capital base. As earlier stated in chapter 2.4, only assets which have an affirmable and safe market-value are allowed in an Investment Savings Account.70_{The fourth part consists of} investment assets which are transferred from another investor’s Investment Savings Ac-count. The Treasury Department has also made a distinction between investment assets traded directly from one investor to another and investment assets traded through a regu-lated market. Establishing market-value when a reguregu-lated market is not used is more diffi-cult, and could lead to under and over priced transactions in connection with the balancing of the account.71

The Treasury Department has through a memorandum appendix presented on the 6th_of April 2011 decided to change regulations regarding taxation of ready money. As stated above only “new” money affects the capital base of the account. The appendix states that also interest generated on ready money kept in the account should be subjected to taxation, if the interest rate at some point during the year exceeds GBR of the 30th_{of November} plus 0.75 %. The interest should then be subjected to conventional tax although the return on investment is generated within an Investment Savings Account. Since otherwise the in-vestor would be able to lend money and invest it without being taxed for it.72

Not all transactions in connection with balancing the account are made to evade tax, hon-est trade takes place as well. Regardless of the reason for trade, assets that are not registered

69_{Ibid., p. 87.} 70_{Ibid., p. 88.} 71_{Ibid., p. 89.}

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in either the seller’s or the buyer’s account on the day of balancing should be considered when calculating the buyer’s account.73

The capital base of the Investment Savings Account should be multiplied by the GBR, which is the average interest on all government issued securities74_{with an expiration date} further ahead than five years. The GBR is currently the base for flat-rate taxation for en-dowment assurances and pension insurances. The proposal suggests that the GBR by the 30th_{of November the previous year is used for Investment Savings Accounts.}75_{The rate} which is used to establish the standard revenue should be 0.75 % greater than the GBR. The reason for this is that high-risk financial instruments such as shares have a presumed return of 3.3 %,76_{which is higher than government securities.}

Completing the calculations explained above results in the standard revenue of the Invest-ment Savings Account from where tax should be levied. To maintain neutrality between the different ways of saving, 30 % tax77_{has been suggested since this is the current tax rate} on conventional taxation.78_{This would result in an effective tax rate of 22.2 % whereas} conventional effective tax is 28.7 %. Another reason apart from neutrality is that lowering of the tax rate could work as an incentive for private investors to save their money and work up a safety buffer. A flat-tax rate also invites people to realize their profits, which prevent tax payments from being deferred.79

To illustrate the tax calculation using flat-rate tax on an Investment Savings Account ex-plained above an example is presented:

74_{In Swedish statspapper.}

76_{Ibid., pp. 49 and 126.}

77_{Inkomstsskattelagen (1999:1229), Chapter 65 Section 7.}

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Example 1: Investment Savings Account

Year 1 Year 2

Quarter Capital Base Quarter Capital Base

1 100.000 SEK 1 110.000 SEK

2 105.000 SEK 2 100.000 SEK

3 110.000 SEK 3 95.000 SEK

4 115.000 SEK 4 90.000 SEK

Total 430.000 SEK 395.000 SEK

Year 1:

Year 2:

Noteworthy is that the closing balance value of year 1 is not the same as the opening ba-lancing value of the following year since the account is balanced at the beginning of every quarter of the year. Notable is also that even though the account value has decreased from year 1 to year 2, tax is still being levied year 2.

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3 Current Legislation on Capital Taxation in

Compar-ison to the Proposal

3.1 General Prerequisites

Prior to the Swedish Income Tax Law80_{(ITL), regulations regarding tax on income were} shattered over 35 different laws.81_{Current laws on taxation of capital does not demand a} certain account. The proposal is therefore not so much an amendment as it is an alternative way of saving financial instruments. The actual change the proposal brings refers to the calculation of return on investment and taxation, which is discussed in chapter 3.2.

An explanation and comparison about current saving alternatives will now be presented. Usually financial instruments are kept in an account called securities account82_{or a} securi-ties portfolio83_{provided by a bank, insurance company or some other credit institute. The} credit institute is in turn supervised by the Swedish Securities Register Center84_.85

The setting up of a securities account or a securities portfolio is not very complex and does not differ much from the proposal on Investment Savings Account. The investor has to apply for an account or portfolio at a credit institute. There are no regulations stated re-garding cost and brokerage fees associated with the account/portfolio, but as earlier stated neither does the proposal. This could result in credit institutes charging high starting fees to provide the account and high brokerage fees since there is no limit set.86_{Since there are no} specific regulations concerning these kinds of accounts there are no limitations on what sort of instruments can be traded in them either. As stated in chapter 2.3 there are regula-tions regarding financial instruments allowed in an Investment Savings Account. Prior to the memorandum appendix the proposal was devastating and discriminatory towards

com-80_{Inkomstskattelagen (1999:1229).} 81_{Prop. 1999/2000:2, Inkomstskattelagen.} 82_{In Swedish värdepapperskonto.} 83_{In Swedish värdepappersdepå.} 84_{In Swedish Värdepapperscentralen.}

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panies listed on MTFs. Not allowing all companies to gather equity capital from all inves-tors could prevent a healthy trading environment.87

3.2 Tax calculation

3.2.1 General Prerequisites

General regulations regarding tax on capital profit is found in Chapter 44 ITL. Specific rules concerning capital profit and loss are found in Chapter 48 ITL. Conventional capital taxation is based on capital profit and capital loss upon divestment of financial instru-ments,88_{in contrast to Investment Savings Account which is taxed upon possession of} as-sets. ITL allows capital loss to be subtracted from capital profit if it arises during the same year.89_{However, only capital loss which derives from divestment at market value is} permit-ted for deduction, hence capital loss creapermit-ted through divestment at a false price is not al-lowed.90_{Since Investment Savings Account is taxed upon possession of assets and not} ac-tual profit, loss cannot be subtracted in regard of Investment Savings Account.

Calculating tax on capital is generally easier than calculating tax on income since the tax rate on income is proportional to how much you earn,91_{and general tax deductions are} quite frequent which might complicate things.92_{What makes tax calculation on capital} diffi-cult is establishing profit and loss derived from the assets.93_{To establish capital profit and} loss, remuneration for the asset sold should be reduced by the expenditure cost.94_The pro-posal provides two ways to calculate expenditure cost, the Average Expenditure Cost Me-thod95_{(Average Method) and the Flat Expenditure Cost Method}96_{(Flat Method), which are} explained and discussed below. The tax rate of capital profit is 30 %;97_{the reason for tax on}

87_{Stock magazine, Nr 1, 2011, p. 14.}

88_{Inkomstskattelagen (1999:1229), Chapter 41 Section 2.} 89_{Ibid., Chapter 48 Sections 19-24.}

90_{Ibid., Chapter 44 Section 24.}

Inkomstskattelagen (1999:1229), Chapter 65 Sections 3 and 5.

94_{Inkomstskattelagen (1999:1229), Chapter 44 Section 13.} 95_{In Swedish genomsnittsmetoden.}

96_{In Swedish schablonmetoden.}

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capital being lower than tax on income98_{is the effect inflation has on capital. If an} invest-ment has increased by 10 % over a year and the inflation rate for that year is 4 % the real profit is just 6 % but the total 10 % is being taxed, lower tax rate makes up for being taxed for inflation.99

3.2.2 Average Expenditure Cost Method

When calculating the average expenditure cost, the expenditure cost of all shares of the same sort as the one sold should be used.100_{Expenditure cost is the acquisition cost plus} costs for improvement.101_{To establish the expenditure cost of a financial instrument is not} very difficult if there is only one purchase date and one purchase price. For instants if per-son P bought 100 shares in company C for 10 SEK each, the expenditure cost is 100 * 10 SEK = 1000 SEK. However, it can be troublesome when there are multiple purchasing dates at different purchasing prices. This could inter alia occur when the company emits new shares or at a merger.

Example 2: Average Expenditure Cost Method

Year Quantity Value Total

2005 100 10 SEK 1 000 SEK

2006 200 20 SEK 4 000 SEK

2009 300 50 SEK 15 000 SEK

2010 200 40 SEK 8 000 SEK

Total 800 28 000 SEK

When selling 100 shares at 50 SEK/share 2011, the expenditure cost of the last purchase date, 40 SEK, is not to be used but the average expenditure cost of 35 SEK should.

98_{Inkomstskattelagen (1999:1229), Chapter 65 Sections 3-5.}

99_{Dreij, O, Kapitalförsäkringar, 1 ed., Tholin & Larssons förlag, 2004, Göteborg, p. 34.} 100_{Inkomstskattelagen (1999:1229), Chapter 48 Section 7.}

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Using the expenditure cost of the last purchase date, which was 40 SEK, would have re-sulted in an expenditure cost of 4000 SEK and a capital profit of only 1000 SEK resulting in only 300 SEK in tax instead of 450 SEK which was the case using the average expendi-ture cost. This proves information presented to the Tax Agency easily can be incorrect.

3.2.3 Flat Expenditure Cost Method

An alternative to the Average Method when establishing the expenditure cost is the Flat Method. The Flat Method may be used on shares acquired on a regulated market or a MTF.102_{When using the Flat Method the expenditure cost should be set to 20 % of the} remuneration acquired upon selling the share.103_{This method has been established since} es-tablishing expenditure cost of old possessions of financial instrument can be difficult. It is therefore not permitted when establishing expenditure cost for share options and forward shares since these types of investments run over a short period of time.104

Example 3: Flat Expenditure Cost method

Year Quantity Value Total

2005 100 X X

2006 200 X X

2009 300 X X

2010 200 X X

Total 800 X

When selling 100 shares at 50 SEK/share 2011 the following should be done:

102_{Inkomstskattelagen (1999:1229), Chapter 48 Section 5.} 103_{Ibid., Chapter 48 Section 15.}

104_{Lodin, S-O, Lindencrona, G, Melz, P, Silferberg, C, Inkomstskatt – en läro- och handbok i skatterätt Del}

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As shown above in a couple of different examples the different ways of correct and incor-rect ways of calculating the expenditure cost results in quite different tax payments. Both the tax payment of 450 SEK in example 2 and the tax payment of 1200 SEK in example 3 are correct but lead to vary different income of tax for the government.

3.3 Tax Return Declaration

The purpose of the current law on tax return declaration105_{was to make it perspicuous and} linguistically easily understood.106_{Today the Tax Agency receives information regarding the} tax subject, the investor, from employers regarding income and concerning capital income from credit institutes.107_{Information concerning capital income is usually not complete,} since only remuneration for selling a share is reported to the Tax Agency, which is not enough to determine the capital profit and the taxable income. The investor then needs to add information to the Tax Agency through a statement of earnings and tax deduction.108 Also if information that the tax subject receives from the Tax Agency is incorrect or miss-ing, the tax subject is obliged to change or add this information.109_{This system creates} situ-ations where the tax subject may not know how to fulfill his declaration obligation, leading to incorrect and/or untruthful numbers being presented. This results in tax payers paying incorrect tax creating an unpredictable tax base.110

The proposal provides an alternative approach when dealing with declaration of income on capital. Since divestment of assets in an Investment Savings Account does not create taxa-ble capital profit, the protaxa-blems of declaring capital income are not as difficult. The propos-al suggests that the credit institute providing the Investment Savings Account should report

105_{Lag (2001:1227) om självdeklarationer och kontrolluppgifter.}

106_{Prop. 2001/02:25, En ny lag om självdeklaration och kontrolluppgifter.}

107_{Lag (2001:1227) om självdeklarationer och kontrolluppgifter, Chapter 9 Sections 1 and 4.} 108_{Ibid., Chapter 10 Sections 2 and 6.}

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information concerning the standard revenue of the account to the Tax Agency. Natural persons and decedent estates are today obliged to declare their capital income to the Tax Agency,111_{although, individuals who only have income from Investment Savings Account} are exempted from the declaration obligation according to the proposal. The reason for this is that the Investment Savings Account brings declaration obligation to persons who today do not have to declare income, such as children. However, they are not exempted from tax which derives from the Investment Savings Account.112

The actual declaring of tax on capital might be less difficult with the new proposal since credit institutes are obliged to report more information. Credit institutes are according to the proposal obliged to report the standard revenue of the account, to do this they have to balance the account four times a year.113_{Investors still usually want to be able to overlook} their investments and have an understanding of how tax is calculated. This is much harder when using the new regulations. The proposal will also lead to investors having to pay back taxes, since the investor will have a hard time planning his taxable capital profit, and not understanding the difficult calculations which the proposal brings.114

111_{Lag (2001:1227) om självdeklarationer och kontrolluppgifter, Chapter 2 Section 1.} 112_{Finansdepartementet, Schablonbeskattat investeringssparkonto och ändrad beskattning av}

113_{Ibid., p. 121.}

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4 Current Legislation on Endowment Assurance in

Comparison to the Proposal

The most prominent reasons for using an endowment assurance are; the beneficial tax sys-tem, the lack of the otherwise compulsory tax declaration and the investor not having to report holdings and selling of shares in companies which the investor has insight in.115_To be able to keep financial instruments in an endowment assurance the investor has to apply for such an assurance at a bank, insurance company or other credit institute who provides this service. When getting the request approved the investor transfers ready money to an account which the credit institute controls. The two parties can agree upon if either the in-vestor or the institute should operate the account. Normally a letter of attorney is given to the investor from the institute so that the investor can control and operate the assets within the endowment assurance.116

Endowment assurances are subjected to flat-rate tax and thus not subjected to convention-al tax on reconvention-alized profit.117_{Another difference between conventional taxation and taxation} on endowment assurances is that it is the credit institute who owns the assets and the credit institute is therefore also carrying the tax obligations. The fee that the investor pays to the credit institute is regarded as the investor’s tax but is more or less a payment for the service provided by the institute. Since the institute owns the assets, investors are not allowed to attend annual meetings; they cannot exercise their voting right as a shareholder and they do not have to report when selling shares.118_{Reporting holdings and selling of shares is} com-pulsory for investors with insight in companies which they own shares in, regarding current conventional saving alternatives.119_{Investors with insight not having to report their} hold-ings when keeping them in an endowment assurance is not preferable for the market and not something the Investment Savings Account is aiming for.120

To calculate the tax on the endowment assurance-holder should pay, the value of the as-surance must first be established. To do this the capital base of the endowment asas-surance

115_{Tivéus, U, Skatt på kapital, 13 Uppl., Nordstedts Juridik AB, 2010, Visby, p. 68.} 116_Ibid.

117_{Dreij, O, Kapitalförsäkringar, 1 Uppl., Tholin & Larssons förlag, 2004, Göteborg, p. 33.} 118_{Konsumenternas försäkringsbyrå.}

119_{Lag (2000:1087) om anmälningsskyldighet för vissa innehav av finansiella instrument, Section 4.}

120_{Finansinspektionen, (Fi 2010/5534), Yttrande angående Schablonbeskattat investeringssparkonto och}

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must be established, this is done through balancing the endowment assurance account. This is only done once a year, on the 1st_{of January,}121_{compared to the Investment Savings} Account which is balanced four times a year. The second step of the calculation is to estab-lish the standard revenue of the account. This is done by multiplying the capital base by the average GBR during the past year, compared to the GBR of the 30th_{of November the past} year which is used on Investment Savings Account. No additional percentage is added such as in the Investment Savings Account. To calculate the actual tax, 90 % of the standard revenue is multiplied by 30 % which is the standard tax-rate of capital profit,122_which re-sults an actual tax of 27 % for endowment assurances. The Treasury Department has de-termined that taxation of capital should be as neutral as possible, and therefore decided that also endowment assurances should be revised.123_{The reason for the tax-rate on} en-dowment assurance being lower than the conventional tax-rate on capital is due to deduc-tion of capital loss is not allowed in endowment assurances. Deducdeduc-tion of capital loss is as mentioned earlier not permitted in Investment Saving Accounts either. Increasing the tax-rate on endowment assurances to fit the tax-tax-rate of Investment Savings Account is there-fore in conflict with the original purpose of the tax-rate of endowment assurances.124 An issue which the Treasury Department would like to solve regarding endowment assur-ance is that an investor can prior to balancing the account close the assurassur-ance through re-purchasing it and after the 1st_{of January set up a new endowment assurance. This results in} no tax being levied since the account is only balanced on the 1st_{of January. The investor} should not be able to manipulate the tax outcome through deposits and withdrawals. To solve this problem the account should not be balanced more often, but deposits should af-fect the value of the account. Deposits made prior to the 30th_{of June should affect the} ac-count to 100 %, whilst deposits made from the 1st_{of July till the 31}st_{of December only} should affect the value of the account by 50 %.125_{The Tax Agency is of the opinion that} legislation should be as unison and simple as possible and therefore suggests that deposits made during the last six months of the year also should affect the taxation of the account

121_{Konsumenternas försäkringsbyrå.}

122_{Lag (1990:661) om avkastningsskatt på pensionsmedel Section 9.}

124_{Svensk Skattetidning, Nr. 1, 2011, p. 52.}

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to 100 %.126_{Regardless of ready money affecting the value of the account to 100 or 50} per-cent the result will be that it will be unfavorable from a tax perspective both for endow-ment assurances and for Investendow-ment Savings Accounts to deposit money close to the ac-count being balanced. The reason for this is that deposited money will be taxed but the closer to the balancing date the deposit is the less the investor has had use for them, but is still being taxed for them.127

Also the tax calculation and tax-rate should change according to the proposal so that there is neutrality between different saving alternatives. The Treasury Department therefore sug-gests that tax should be calculated in the same way as an Investment Savings Account. The capital base should be multiplied by the GBR on the 30th_{of November the past year plus} 0.75 % creating the standard revenue. The standard revenue should then be multiplied by the regular capital taxation rate of 30 %.128

Example 4: Endowment Assurance

Current tax calculation on endowment assurance: Year 1

Capital base: 100.000 SEK

Tax calculation according to the proposal

Capital base: 100.000 SEK

With a capital base of 100.000 SEK the tax payment increases from 748 SEK to 1056 SEK which in an increase of about 70 %, when using the calculation according to the proposal.

Skatteverket, 131 808408-10/112, Yttrande angående Schablonbeskattat investeringssparkonto och ändrad beskattning av kapitalförsäkring.

127_{Svensk Skattetidning, Nr. 1, 2011, p. 48.}

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5 Analysis and Conclusion

5.1 Analysis

5.1.1 Introduction

In this chapter information and opinions presented in previous chapters are discussed. A neutral position is taken, but personal reflections regarding information and statements are given. The reader should bear in mind that the objective of this thesis is to evaluate if measures taken in the proposal on the Investment Savings Account from the Treasury De-partment are relevant and adequate in comparison to current Swedish tax legislation and to what it achieves. The objective is also to determine whether the proposal will have the de-sired effect of making investing in financial instruments easier and to whom the Invest-ment Savings Account is addressed.

5.1.2 The Proposal’s Relevancy and Adequacy

Arguments have been presented regarding the cost which a credit institute might place on supplying an Investment Savings Account. It has been said that not stating limitations on fees might result in credit institutes imposing investors with fees which might influence the choice of saving alternative for private investors. I find not regulating the size of fees will not make a difference since looking at current laws, which also have no restriction in this matter, is working well. The market itself handles issues as such; competition will adjust the fees to a level where the market will function.

A large portion of chapter 2 is addressed towards the issue of what types of investments should be allowed in an Investment Savings Account. Prior to the memorandum appendix was presented it seemed as if small and medium sized companies would be treated unfairly and be subjected to discrimination. However, the appendix brings major changes on that area, which is necessary. Not allowing investors to buy shares in companies listed on MTFs would have restricted investment possibilities at a scale which would have made the In-vestment Savings Account uninteresting for most investors.

The proposal presents thorough regulations concerning how, if and when financial instru-ment can be transferred to and from an Investinstru-ment Savings Account. The Treasury De-partment realizes the importance of regulating this area, loose regulations concerning trans-ferring investments could lead to tax evasion. A concern which I have is that the proposal states that assets cannot be transferred to an account which is not an Investment Savings

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Account from an Investment Savings Account. Although, when an Investment Savings Account is canceled the account turns into a non Investment Savings Account subjected to conventional tax. In other words does a transaction from an Investment Savings Account to an account which is not take place. It is of course necessary to be able to cancel an ac-count upon abuse; the result of this must be that it becomes a non Investment Savings Ac-count. What is notable is that a way in which an account can be canceled is through having unauthorized assets in it. The credit institute is obliged to notify the investor of such assets so that the unauthorized assets can be removed from the account. Failure by the credit in-stitute to notify the investor does not, according to the proposal, lead to any sanctions for the credit institute. This could lead to credit institutes not taking their information obliga-tion as serious as is needed. Assets could then unnecessarily be forced to be transferred from an Investment Savings Account to an account which is not, leading to extensive extra work, which the proposal is aiming to eliminate. This also results in the investor having to pay closer attention to his investments to not have the account canceled. The aim of the proposal is to make investing in financial instruments easier; forcing investors to monitor their investments is not in conformity with the aim of the proposal.

The Treasury Department has decided on using the GBR to establish the standard revenue of the account, which is an approach that has proven to work well in the past. The Trea-sury Department also suggests adding 0.75 % to the GBR, with the motivation that high-risk financial instruments have an average presumed return on investment of 3.3 %. With the GBR of November last year of 2.84 %, which would result in 3.59 % after adding 0.75 % it seems like a reasonable way of calculating the standard revenue. Although, just four years ago, 2007, the GBR of the 30th_{of November was 4.16 %, resulting in 4.91 % after} adding 0.75 %. This means that for the investor to make a profit from his investments he has to have an average return on investments of at least 4.91 %, which is well over the av-erage 3.3 % the Treasury Department claims is normal for high-risk investments. At the pace in which the Swedish state bank129_{is increasing the GBR, reaching interest levels} equivalent to 2007 within a few years is quite possible. By taking these actions the Treasury Department also insinuates that investors using an Investment Savings Account should be saving their money in high-risk investments. This results in investors having to take a greater risk than the investor might feel comfortable with, leading to investors not investing their savings which will impede the financial market. The Treasury Department also seems

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to find the stock market being acclivitous at all times, which it has proven to be in the past, but over long periods of time that is. Over the course of a year the stock market tends to go up and down. Investors therefore usually get out of the market by selling their assets while waiting for the economic situation to turn around. During this period the investor might put its money in interest funds or just keeping them in an account where the risk is lower. The proposal suggests that also ready money kept in an Investment Savings Account should be taxed. This means that money which is not generating any profit at all or at least less profit than GBR plus 0.75 % is being taxed. Assumedly, this is not a situation most in-vestors prefer. The same thing goes for ready money which is put into an Investment Sav-ings Account upon opening it. Not all investors might know straight away what to invest in, also such money is being taxed without generating capital profit.

An additional observation of the proposal reveals that having to pay tax on unrealized profit, which is the case in an Investment Savings Account, actually impedes the financial market since investors will need ready money to pay tax with every year which they then cannot invest in the financial market. Preventing the investor from investing money in the financial marked because the investor has to pay tax seems unhealthy for the market. When turning to the issue of declaring income of capital which seems to be of great impor-tance for the Treasury Department, one has to ask himself if measures taken in the propos-al could be pointed in another direction, creating less reformation but still the same result. The proposal suggests that the credit institute should balance the Investment Savings Ac-count four times a year and with that information calculate the standard revenue of the ac-count, which should be reported to the Tax Agency. The credit institute is also obliged to inform the investor of unauthorized assets kept in the account. As a non banking expert this seems like quite a lot of extra work for the credit institutes. As mentioned above the main purpose of the proposal is to make investing in financial instruments easier, especially the declaration. Instead of creating a new alternative of saving financial instruments, could not the Treasury Department have increased the credit institutes information and reporting obligations towards the Tax Agency? If the credit institute, in regard of conventional taxa-tion, were obliged to calculate the expenditure cost and capital profit just as securities bro-kers are obliged to do today, would not that make investing in financial instruments easier for private investors, while adding an equal amount of extra work for credit institutes as the proposal already suggests? Modern technology could probably provide credit institutes with

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a computerized program which automatically could calculate expenditure cost and capital profit or loss.

Further discussion could also be held on the subject of imposing credit institutes with a heavy workload. Information has been presented in regard of how often an account should be balanced. Arguments have been laid out concerning balancing an Investment Savings Account too often would impose credit institutes with too much work. I am of the opinion that if credit institutes such as banks can calculate interest income of an account on the ba-sis of 365 days a year, which is the case today, forcing them to balance an Investment Sav-ings Account equally is within reasonable demands. Although, I agree with the Treasury Department that the Investment Savings Account should not be balanced more than four times a year, balancing it more often would make it even more difficult for the investor to predict the tax on the account.

Amendments made in the proposal concerning endowment assurances results in higher taxation. The reason for this, according to the proposal, is that taxation on capital should be as equal as possible and endowment assurances have therefore taken on similar regula-tions regarding tax calculation as the proposal suggests for the Investment Savings Ac-count. A question which arises is; why are not regulations regarding Investment Savings Account conformed to already existing laws on endowment assurances instead of the other way around? Is there a hidden purpose of tax elevation within the proposal? As mentioned in chapter 4, there are reasons for tax on capital and especially endowment assurances be-ing lower than tax on income. Increasbe-ing taxation on endowment assurances would be counterproductive compared to fundamental values of taxation of endowment assurances. Some investors might now have to cancel their endowment assurances and by doing that lowering their activeness on the financial market. Although, it is positive that regulations on deposits and withdrawals in reference to endowment assurances have been changed ac-cording to the proposal, tax evasion has been too easy through endowment assurances and has a negative impact on the tax base.

5.1.3 Users of the Investment Savings Account

According to the proposal’s purpose the main reason for it existing is to make saving and investing money in financial instruments easier. A relevant question to ask at this juncture is then; what type of investor find investing in financial instruments difficult and who might benefit from using an Investment Savings Account?

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It is quite common for parents and grandparent to invest money in shares for their children and grandchildren. When investing in financial instruments using a conventional alterna-tive, tax is levied upon divestment of capital profit. Usually investments of this kind are kept over an extended period of time and purchasing and selling does not take place very often. The same goes for people saving for their pension. If using the Investments Savings Account the tax being levied every year will gradually decrease the invested money if a re-turn on investment does not exceed GBR plus 0.75 %. In the case of grandparents saving money for their grandchildren, not only will they have invested a lump sum, they also have to pay taxes every year, since the tax is levied upon possession of assets.

For investors making a living on trading on the financial market there is already an alterna-tive which makes it easier to declare and predict taxation, endowment assurances. The In-vestment Savings Account therefore seems redundant. If tax on endowment assurances is elevated to be in conformity with the Investment Savings Account the investor might as well keep his endowment assurance instead of changing to an Investment Savings Account. According to the proposal and example 4 in this thesis, tax on endowment assurances will increase by 70 %. This might lead to investors not wanting to use either endowment assur-ances or an Investment Savings Account.

Investors with large possessions of shares in companies which they have insight in using endowment assurances do not have to report holdings and selling of shares. This has to be done according to the Investment Savings Account, investors with large possessions and insight might then keep their endowment assurance instead of setting up an Investment Savings Account.

For people who are just starting their investments in financial instruments it might seem easier to have them in an Investment Savings Account, but a more thorough information obligation imposed on credit institutes would make conventional saving alternatives seem just as simple. For people with already existing investments in a conventional saving alter-native, with old possessions of shares which consists of many different purchasing dates, the Investment Savings Account might seem as a good solution to troublesome expendi-ture cost calculations. However, such investors have to realize and declare those invest-ments using the conventional tax system before transferring the money into an Investment Savings Account.

Investment Savings Account : A Legislative Proposal on Swedish Capital Taxtion for Private Investors

Bachelor’s Thesis in Commercial and Tax Law

Abstract

Table of Contents

1

Introduction ... 1

2

Presentation of the Proposal ... 5

3

Current Legislation on Capital Taxation in

Comparison to the Proposal ... 16

4

Current Legislation on Endowment Assurance in

Comparison to the Proposal ... 22

5

Analysis and Conclusion ... 25

Abrriviation List

1

Introduction

1.1

Background

1.2

Objective and Delimitation

1.3

Method and Material

2

Presentation of the Proposal

2.1

General Prerequisites

2.2

Setting up an Investment Savings Account

2.3

Definition of the term “Financial Instrument”

2.4

Transactions to and from an Investment Savings Account

2.5

Closing and Canceling an Investment Savings Account and

the Information Obligation

2.6

Tax Calculation

3

Current Legislation on Capital Taxation in

Compar-ison to the Proposal

3.1

General Prerequisites

3.2

Tax calculation

3.3

Tax Return Declaration

4

Current Legislation on Endowment Assurance in

Comparison to the Proposal

5

Analysis and Conclusion

5.1

Analysis