Shift Happens: Evaluating the Effects of Sweden’s 2013 Interest Deductibility Limitations Reform

Abstract

This thesis evaluates the effects of Sweden’s 2013 reform, tightening the deductibility of intra-group interest expenses, an anti-avoidance measure targeting profit shifting through internal debt. Using firm-level panel data from the Serrano database covering Swedish group firms with 100 or more employees over 2005–2015, we estimate a three-period difference-in-differences specification that also accounts for the narrower 2009 interest limitation rules. Treated firms are identified through intra-group interest flows combined with firm-level persistence in the use of the channel. We find indications that over the sample period intra-group interest expense among treated firms decreased, both in absolute terms and relative to total assets. This reduction did not translate into a higher corporate tax burden. Treated firms also significantly increased their use of group contributions, preserving aggregate tax efficiency through a substitute channel. We find no robust evidence that real economic activity contracted. The results suggest that interest limitation rules can close targeted channels but leave overall tax-planning capacity intact when substitutes remain available.