Investing In... 2021

Last Updated January 18, 2021

Sweden

Law and Practice

Authors



Mannheimer Swartling is the leading business law firm in Sweden. It employs around 600 persons in total, practising out of offices in Sweden, Belgium, Russia, the USA and Singapore. It is an independent firm, but is able to provide seamless service to clients across all jurisdictions through its extensive network. The firm includes more than 100 M&A lawyers, supported by class-leading specialists in all business law areas. The team has the scope and scale to credibly handle the largest and most complex local and cross-border M&A mandates. Recent assignments include advising Scandinavian Airline Systems on its recapitalisation to address the effects of the COVID-19 pandemic.

The legal system in Sweden is based on the civil law tradition but, as with the other Nordic countries, it has evolved into a model that is neither a truly civil law system nor a common law system. In addition to domestic legislation, EU law is the most important source of law in Sweden. In harmonised areas, EU law is the basic source of statutory law, as well as case law.

Sweden has three levels of government: national, regional and local (the municipalities). There are multiple governmental bodies in the different areas of the legal system, and all three levels of government may be relevant to a business operating in Sweden. There are two different court systems: one general and one administrative. Both systems have a three-tier hierarchy. Arbitration is the most common form of dispute resolution between businesses, with the rules of the Stockholm Chamber of Commerce Arbitration Institute usually being applied.

Foreign investors usually conduct business in Sweden through a Swedish subsidiary or branch. The corporate form predominantly used in Sweden is the limited liability company (aktiebolag in Swedish). An active company must be registered with the Swedish Companies Register and the Swedish Tax Authorities. Depending on the sector in which the business operates, there may of course be additional legal requirements and the company may be subject to governmental supervision.

In addition to sector-specific ownership assessment procedures historically in place (eg, in the financial and energy sectors), a fast-tracked initiative triggered by the COVID-19 outbreak was implemented on 1 January 2021, by means of a revamping of the Protective Security Act. According to the amendments, a seller of assets or shares in a company that engages in activities related to Swedish national security is obliged to consult with the competent authority before completing a transaction, as further described in 7 Foreign Investment/National Security.

Activity on the Swedish M&A market has picked up pace again since the summer, with an increase in risk appetite following a period of lower activity during the spring of 2020. Both corporates and private equity firms are active on the buy-side and the sell-side. However, the current uncertain market conditions have led to more tailored sales processes, often with one bidder being selected earlier in the process rather than full-blown auctions. Furthermore, it typically takes longer to complete a transaction, as bidders are spending more time on valuation and due diligence. Although confidence now seems to be rising, actors in the M&A market are still highly observant of any new disturbing events, and there has been increased deal uncertainty as a result of financing outs and the use of material adverse change conditions to closing.

In recent years, M&A insurance has pursued a strong upward trend in the Swedish market and is now a common feature of Swedish private M&A transactions. The market for M&A insurance placed on the Swedish market has become increasingly competitive. In addition to warranty insurance, there is also a growing number of tailor-made insurances covering specific risks, such as tax indemnities.

As stated in 1.2 Regulatory Framework for FDI, Sweden has implemented general FDI rules on the pre-approval of transactions. However, such rules only apply when the target’s business may have implications on Swedish national security. A more comprehensive FDI scheme is being investigated and might be expected in 2022.

Public Bids

If the target is being traded on Nasdaq Stockholm (or any other regulated market), the bid shall be made in accordance with the rules of the Swedish Takeover Act as well as the rules of the regulated market. Often, cash bids are made by a newly incorporated bidco. Takeovers by way of statutory mergers are more rare; share offers are instead more often structured as exchange offers for newly issued shares. Historically, recommended bids have been most common, but hostile bids also occur.

Private M&A

For private M&A, the legislative environment in general is permissive and does not burden the process with formalities. Private M&A deals are typically structured as acquisitions rather than mergers (although post-completion restructurings, including mergers, often take place), and, to the extent possible, as share transfers rather than business or asset transfers.

Formal requirements in relation to transfers of shares are limited to an agreement between the parties (which may be oral, but almost never is) followed by the payment of the purchase price against delivery of the shares. In relation to central securities depository (CSD) companies, a share transfer is effected through a registration on the relevant securities accounts; in relation to non-CSD companies, it is effected through the endorsement and delivery of the share certificates, or, when no share certificates have been issued, through a notice to the board of directors regarding the share transfer. It can be noted that the articles of association of a private limited liability company often include transfer restrictions that will need to be waived by the shareholders.

Acquisitions of significant stakes of shares listed on a Swedish regulated market or of other financial instruments issued by or relating to such shares are subject to the Swedish Takeover Act and related rules, and can be subject to notification obligations should the investor reach, exceed or fall below any reportable threshold (please see 4.3 Disclosure and Reporting Obligations and 5.2 Securities Regulation).

For private M&A, Sweden offers a relatively free and unregulated market, with the framework set by general rules in the Companies Act, the Contracts Act and the Sale of Goods Act. While the Companies Act governs both the internal affairs and the external relations of a Swedish limited company, the Sale of Goods Act sets out the principles applicable to the sale and purchase of corporate entities. The application of the Sale of Goods Act, however, is normally negated by agreement, since the parties to M&A deals typically prefer to negotiate their own framework for the deal. The Contracts Act contains rules on the formalities of a contract, including rules on when a contract should be considered void or adjusted due to unfairness.

Apart from what is stated in relation to FDI rules (please see 7.1 Applicable Regulator and Process Overview), a transfer of shares may be subject to competition clearance (please see 6 Antitrust/Competition). Additional rules may also apply, depending on the sector in which the target is engaged. For example, investments in businesses deemed critical from a public perspective (eg, the defence, nuclear and aviation sectors) are subject to specific requirements on consents and restrictions on foreign ownership of capital and/or voting rights.

Other exceptions include certain transactions in the financial services sector, and certain investments structured as investment funds (please see 5.3 Investment Funds), where approval from authorities may be required. Furthermore, a transaction may entail corporate changes, including with respect to the board or the articles of association, which involve filing requirements.

The corporate and other legal entities that exist in Sweden for the conduct of business are limited liability companies (aktiebolag in Swedish), partnerships (handelsbolag), co-operatives (ekonomiska föreningar), foundations (stiftelser), and European Companies (Societas Europaeas). The most commonly used form is limited liability companies, which are divided into two categories: private companies and public companies. Public companies may offer their securities to the public, whereas private companies may not. As a result, only the securities of public companies may be admitted to trading on a regulated market.

The main source of corporate legislation is the Companies Act, which sets out corporate governance principles such as the duties of the board and the CEO, shareholders’ rights and obligations, and the requirements for general meetings and for guidelines in respect of director and management remuneration. The Companies Act also contains rules on the protection of shareholders’ equity, increases in share capital and liquidation.

Listed companies are subject to a combination of legislation, self-regulation and generally accepted practices. In addition to the Companies Act, sources of such include the Swedish Corporate Governance Code and the regulated markets’ rules, as well as statements and rulings by the self-regulatory body – the Securities Council – on what constitutes good practice on the Swedish securities market.

Both private and public companies are governed by the Companies Act, which is designed to prevent shareholders from unduly extracting private benefits from the company. Therefore, the right of shareholders to actually exercise control over a company is coupled with strong minority protection rules. An important part of this protection is the requirement of a qualified majority for certain types of resolutions by the general meeting. Such resolutions require the approval of the majority (and sometimes the supermajority) of both the votes cast and the number of shares represented at the meeting. The protection includes a prohibition on the general meeting and the board taking any action that would give a shareholder or anyone else an undue advantage at the disadvantage of the company or any other shareholder. Furthermore, a minority of a certain size (typically 10% of all shares) is afforded certain rights, such as the right to require that the general meeting resolve on a certain dividend and the right to have a special examiner appointed to review certain aspects of the company’s actions.

In a private company, the relationship with the minority investors is typically governed by a shareholders’ agreement whereby the parties agree on the governance of the company.

When an investor (whether foreign or Swedish) acquires shares listed on a Swedish regulated market or other financial instruments issued by or relating to such shares, said investor may be obliged to notify the Swedish Financial Supervisory Authority (the SFSA) and the issuer if their holdings (including holdings of certain share-related financial instruments and holdings by certain related parties) reach, exceed or fall below the reportable thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50%, 66% (2/3) and 90% of the total number of shares or voting rights in the relevant issuer. The notification obligation can also be triggered passively – eg, due to corporate events such as a share capital increase or a reduction of the share capital. The reporting must be made as soon as possible, but no later than the third trading day following the day on which the major shareholding notification obligation occurred.

For acquisitions of shares or assets in non-listed companies, the parties are not obliged to disclose any details on the transaction. However, each Swedish entity (except listed companies and their subsidiaries, which fall under the rules above) must register its ultimate beneficial owner, together with the group structure, with the Swedish Companies Registration Office. Also, if the transaction is notified to the Swedish Competition Authority, any information filed (except for trade secrets) will eventually become public.

Even if an investment has not been subject to an FDI screening process, the FDI Regulation (as defined in 7.1 Applicable Regulator and Process Overview) will allow other EU Member States and the European Commission to request information up to 15 months after the completion of an investment. Such information includes the ownership structure of the foreign investor, the approximate investment value, and the funding of the investment and its source (please also refer to 7 Foreign Investment/National Security).

If the transaction is subject to the new rules under the Protective Security Act (please refer to 7 Foreign Investment/National Security), the parties to the transaction will be required to provide extensive information to the relevant authorities.

There are two regulated markets in Sweden:

  • Nasdaq Stockholm, where approximately 330 companies are listed; and
  • Nordic Growth Market NGM, where approximately six companies are listed.

There are also three multilateral trading facilities (MTFs): Nasdaq First North, NGM Nordic SME and Spotlight Stock Market.

Although various kinds of institutional investors, such as life insurance companies and pension funds, are common holders of equity in Swedish listed companies, individual ownership of listed-company equity is widespread in Sweden. Also, a majority of the Swedish listed companies have a single or limited number of major shareholders.

The funding of businesses in Sweden has historically been dominated by bank financing. For Swedish non-financial companies, bank financing is still the main source of funding. However, the corporate bond market in Sweden has grown in recent years and now forms a natural and integral part of the funding of many companies, often being available on more favourable terms than bank financing.

The principal legislation through which Sweden has implemented the EU directives relating to admission to trading on a regulated market and offers of securities to the public is the Securities Market Act and the Financial Instruments Trading Act.

Pursuant to the Securities Market Act, a securities exchange is required to have rules of its own, governing the trading on its regulated market. For instance, the Nasdaq Stockholm Rule book for Issuers, which is based on European standards and EU directives, sets forth listing requirements and disclosure rules for companies listed on Nasdaq Stockholm. With respect to reporting on the securities market, please see 4.3 Disclosure and Reporting Obligations.

The Swedish Takeover Act sets out rules on mandatory offers, which state that any person who has acquired shares representing 30% or more of the voting rights for all of the shares in a listed company must make a mandatory offer to acquire the remaining shares in the company. Furthermore, the substantive rules on takeovers are set out in the securities exchanges’ own takeover rules. These rules are based on general principles taken from the EU Takeover Directive.

Please also see 5.3 Investment Funds.

Foreign investment funds’ activities in Sweden are regulated either by the Swedish UCITS Act, implementing Directive 2009/65/EC of the European Parliament and of the Council, or by the Swedish Alternative Investment Fund Managers Act (the AIFMA), implementing Directive 2011/61/EU of the European Parliament and of the Council.

Whether a fund or its manager is subject to any regulatory review under the UCITS Act or the AIFMA depends on the type of fund and whether the fund or its manager conducts any activities in Sweden subject to licensing by the SFSA. A foreign manager of UCITS or alterative investment funds (AIF) intending to market units in the fund in Sweden or to manage the fund from Sweden will be subject to requirements of either notification to or authorisation by the SFSA.

If a foreign UCITS or AIF manager does not conduct any of the above-mentioned activities subject to authorisation or notification requirements, it will not be subject to regulatory review under the UCITS Act or the AIFMA solely because of an FDI. However, a foreign fund or manager that is already authorised in Sweden may become subject to additional regulatory requirements and review by reason of an FDI in a Swedish company if the fund’s ownership exceeds certain thresholds. Such investments result in additional reporting requirements to the SFSA and may trigger rules aimed at preventing asset stripping of the company.

For more about the FDI review regime, please see 7 Foreign Investment/National Security.

The Swedish merger control regime is set out in the Swedish Competition Act, and the Swedish Competition Authority (the SCA) is the relevant authority. No special exemptions or rules under the Competition Act apply specifically to foreign investors or investments. The regime is mandatory and suspensory.

The Competition Act applies to "concentrations", which arise when a change of control occurs on a lasting basis. This covers full mergers, acquisitions of majority shareholdings, acquisitions of controlling minority shareholdings, the establishment of new “full function” joint ventures, and any other transaction or agreement that changes the control structure of an undertaking.

Notification of a concentration to the SCA is mandatory where:

  • the undertakings concerned attain a combined turnover in Sweden of more than SEK1 billion; and
  • at least two of the undertakings concerned have turnovers in Sweden exceeding SEK200 million each.

If only the first of these thresholds is exceeded:

  • the SCA can order the concentration to be notified if the transaction appears to give rise to substantive competition concerns. This can occur post-closing; or
  • parties to a concentration can make a voluntary notification to secure legal certainty of the concentration’s compatibility with the Swedish merger rules.

Notification is possible from the moment a good-faith intention to implement the concentration can be demonstrated – eg, by the parties providing the SCA with a letter of intent or an unsigned copy of the agreement. The SCA also welcomes pre-notification contacts, and engaging with the authority before notifying the concentration can often increase the efficiency of the process. No filing fees are charged.

From the date of receipt of a complete notification, the Competition Act provides for an initial period of 25 working days (Phase I) during which the SCA can decide either that there are no grounds for action or that it will initiate a special investigation of the concentration (Phase II). If commitments intended to remedy identified concerns are offered during Phase I, this period is automatically extended to 35 working days. If the SCA decides to enter into a Phase II investigation, the Competition Act provides for an additional three months for the SCA to decide on whether to prohibit or clear the concentration.

Additional extensions of the time to review a concentration are possible, either with the parties’ consent or if there are exceptional reasons for doing so.

As Sweden is a Member State of the EU, concentrations within Sweden are also potentially subject to EU merger control. In line with this and the one-stop shop principle, the European Commission’s review of a concentration under the EU Merger Regulation takes precedence over that of the SCA, assuming the turnover thresholds in Article 1 and other conditions of the EU Merger Regulation are met.

The SCA’s substantive test of a concentration is whether it would significantly impede the existence or development of effective competition in Sweden as a whole, or a substantial part thereof, particularly if it results in the creation or strengthening of a dominant position (SIEC). If the SCA’s investigation identifies an SIEC, the concentration will be prohibited unless commitments to remedy the SCA’s concerns are agreed. This approach corresponds with the test in the EU Merger Regulation.

In its assessment, the SCA will typically consider the potential unilateral, co-ordinated, vertical and conglomerate effects of a concentration. The Competition Authority’s assessment will take account of all relevant factors, including, for example, market shares, barriers to entry, buyer power, innovation and potential countervailing efficiencies.

To alleviate concerns identified by the SCA, the acquiring party may offer structural and/or behavioural remedies, in either Phase I or Phase II.

Structural commitments typically mean divesting a subsidiary or assets of the post-concentration undertaking active in a market where concerns have been identified.

Behavioural commitments are pledges to take specified pro-competitive actions, such as committing to offering competitors access to essential infrastructure on fair, reasonable and non-discriminatory terms.

Under the merger control regime, the SCA can prohibit a concentration both before and after its implementation if an SIEC is identified and adequate remedies are not agreed.

Before clearance, no party to the concentration may take any steps to complete the transaction. This standstill requirement can be waived by the SCA under exceptional circumstances. The SCA also has the power to order the parties to the transaction to respect the standstill requirement, subject to a fine.

If a concentration is implemented before the SCA’s approval (for example, due to a failure to notify), the SCA can order that it be reversed – ie, order the divestment of acquired companies or assets. No measures may be taken in respect of a transaction, notified or not, when more than two years have passed since the concentration occurred.

Decisions by the SCA to prohibit a concentration, to issue a fine for not respecting the standstill period or to order the reversal of a concentration can be appealed to the Patent and Market Court, which has six months from receipt of the appeal to rule.

An appeal against a judgment by the Patent and Market Court can be made to the Patent and Market Court of Appeal, which has three months from the expiry of the period for appeal to rule.

Introduction

Sweden currently has no FDI screening regime, but new rules are pending.

The first step Sweden has taken is to implement legislation required to satisfy the information gathering requirement under the EU FDI screening regulation (Regulation (EU) 2019/452 of 19 March 2019 – the FDI Regulation).

These newly implemented rules designate the Inspectorate for Strategic Products (the ISP) as the competent authority, and the ISP is given the mandate to order a target or investor to provide information on an FDI, which the ISP may share with other EU Member States and the European Commission, as set out in the FDI Regulation. Thus, investors and target companies in Sweden may be ordered to provide information to the ISP.

Furthermore, significant changes regarding rules on FDI can be expected in the near future. There are currently two legislative initiatives for new FDI screening rules in Sweden, which run in parallel:

  • a parliamentary inquiry appointed to investigate and propose legislation to introduce a comprehensive FDI screening procedure and blocking mandate. The inquiry is set to deliver its proposal in November 2021 at the latest; and
  • a fast-tracked initiative, triggered by the COVID-19 pandemic, by means of a revamping of the Protective Security Act. These amendments entered into force on 1 January 2021.

Proposal for a New Set of FDI Screening Rules in Sweden

The inquiry is in the phase of investigating what type of procedure would be applied and, in particular, whether it should target the same scope as the FDI regulation or a more narrow scope, whether it should impose an obligation on the investor or the target (or both), what time lines should apply, and the effects of a decision by the competent authority.

The inquiry has already stated that it intends to propose that the ISP is designated as the competent authority for the Swedish screening procedure (ie, the same authority that is designated as the contact point for the FDI Regulation).

Although many questions will remain uncertain until the inquiry puts forward its proposal, Swedish stakeholders and interest groups will be able to comment once the proposal goes through the legislative procedure.

Amendments to the Protective Security Act (1 January 2021)

The amendments to the Protective Security Act include the introduction of a control mechanism in the case of transfers of security-sensitive activities and property. The new rules apply regardless of the nationality of the intended buyer – ie, the rules apply to foreign as well as Swedish buyers, and possibly even to intra-group transactions. In short, the obligations require an operator that falls under the scope of the act to perform and document a security analysis as well as a suitability analysis. This documentation will form the basis for the next step of the procure, which is a mandatory consultation with the competent authority.

Following the consultation process, the competent authority may decide to either allow the transaction, impose conditions that need to be met in order for the investment/transaction to be allowed (besluta om föreläggande in Swedish), or block the investment (meddela förbud). If businesses, property or shares are transferred in violation of the competent authority’s decision to prohibit the transaction, the transfer will automatically be considered null and void. A transaction completed without consultation with the responsible authority may be subject to subsequent review, should the authority find that the transaction ought to have been blocked. Such a transaction may also be deemed null and void.

There is no clear definition of what activities and businesses are covered by the act and thereby fall under these obligations. According to the preparatory works, any examples given therein – including digital communication infrastructure, energy production and distribution, and emergency health care – are only indicative.

The following types of transactions are expressly exempted:

  • direct investments in real estate; and
  • the acquisition of shares in a Swedish public company, meaning in short a limited company that is registered as public under the Companies Act, and whose shares can be sold to the public (but the company does not need to be listed).

The amendments do not contain any rules on penalties for failure to comply with the requirements. However, if a transaction is deemed null and void, it is suggested that the responsible authority will have a right to order both the seller and the buyer to take any measures needed to protect Sweden’s security, under the penalty of a fine (vid äventyr av vite).

The Swedish Security Services (SÄPO) is the main competent authority, together with the Armed Forces (Försvarsmakten), which is the competent authority responsible for certain other authorities and individuals within the military defence.

The suggested amendments contain no set time limit for the competent authority’s consultation process. Upcoming administrative directives may add procedural deadlines.

As mentioned above, the amendments to the Protective Security Act include the introduction of a control mechanism in the case of transfers of security-sensitive activities and property. Please also see 7.1 Applicable Regulator and Process Overview.

Please see 7.1 Applicable Regulator and Process Overview.

Please see 7.1 Applicable Regulator and Process Overview.

In addition to the rules described in 7 Foreign Investment/National Security, there are ownership restrictions and notification obligations under Swedish law for certain sectors, such as:

  • the Law on Acquisition of Land for Agricultural Activity, which includes restrictions on who may acquire certain land for agricultural activity from an individual. Authorisation is required for a legal person in most cases, and thus also for a foreign legal person. The objective of these rules is to protect certain parts of the Swedish countryside from commercial exploitation;
  • the Military Equipment Act, under which the ISP may impose conditions when it grants authorisations to produce and develop military goods on certain maximum levels of foreign ownership and board members; and
  • ownership assessments are required for certain companies under supervision by the Swedish Financial Authority, such as banks. However, the assessment is the same for both Swedish and foreign acquirers.

Resident Companies

Limited liability companies registered with the Swedish Companies Registration Office are resident in Sweden and subject to income tax on their worldwide income. All taxable income of a company is categorised as business income. Dividends and capital gains on business-related shares are generally tax exempt under the Swedish participation exemption rules. Unlisted shares are generally considered to be business-related, while listed shares are generally considered to be business-related if they have been held for at least one year and represent at least 10% of the voting rights. The exemption does not apply to shares held as inventory.

All partnerships are treated as transparent entities for income tax purposes and their income is taxed in the hands of the partners.

Non-resident Companies

Companies not registered in Sweden (non-resident companies) are generally subject to income tax only on income derived from Sweden – eg, business income from a permanent establishment in Sweden or income from immovable property in Sweden.

Non-resident companies are subject to the same corporate income tax as residents.

Taxes Applicable to Companies

As of 1 January 2020, the corporate tax rate is 20.6%.

VAT is charged on goods and services in line with EU rules. The standard rate is 25%, while the reduced rates are 12% and 6%.

Real estate stamp duty is triggered upon the transfer of real estate, at a rate of 4.25% if the transferee is a legal entity.

A withholding tax of 30% is generally imposed on dividends on Swedish shares to non-resident shareholders.

However, the participation exemption described in 9.1 Taxation of Business Activities also applies to companies within the EU and foreign companies resident outside the EU that correspond to Swedish limited liability companies. In addition, if the participation exemption rules are not applicable, the withholding tax rate is normally reduced under any applicable tax treaties.

Swedish tax law contains anti-avoidance provisions whereby the domestic exemption or an exemption under a tax treaty is not granted if the non-resident shareholder receives dividends under circumstances in which the holding of the shares is intended to provide an illegitimate tax advantage to a third party.

Sweden does not impose withholding tax on interest payments.

In April 2020, the Swedish Ministry of Finance presented a proposal on a new law on dividend withholding tax. The proposal includes a complete revision of the current rules, and new rules are proposed to enter into force on 1 July 2022 and apply to dividends distributed after 30 June 2022.

Acquisition Structures

An acquisition of a business can be structured in different ways – eg, as a transfer of assets or as a transfer of shares in a subsidiary that holds the assets. The majority of acquisitions in Sweden are structured as a transfer of shares.

In general, capital gains from the sale of business-related shares (in either resident or non-resident companies) are not subject to tax under the participation exemption rules described under 9.1 Taxation of Business Activities, and capital losses on business-related shares are not deductible. When a transfer of shares is made, the buyer will not have any step up in the depreciable asset basis, contrary to an asset deal where the buyer will generally get the fair market value as the depreciable asset basis.

Previously, it was common for a Swedish acquisition structure to be largely loan-financed, but this has become less favourable due to the interest limitation rules described in 9.5 Anti-evasion Regimes.

Tax Losses

Losses may be carried forward indefinitely. No carry-back is allowed. Losses carried forward may expire or be restricted after a substantial change in ownership of the company’s share capital.

Group Contribution

Each company is taxed separately under Swedish law, and group companies cannot file a consolidated tax return; tax consolidation is instead achieved through “group contributions” (koncernbidrag in Swedish), which are payments between group companies that are tax deductible for the payor and taxable to the payee (ie, a transfer of profits).

Non-resident companies are not taxed in Sweden on capital gains from the sale of shares in Swedish companies. As described in 9.1 Taxation of Business Activities, capital gains on business-related holdings are generally tax exempt for resident companies as well.

Capital gains on immovable property are not exempt from tax. The gain is classified as business profit and taxed accordingly. As capital gains from the sale of shares are generally tax exempt, the most common structure when transferring a property is to transfer the property through a share deal. Thus, instead of selling the property directly, it is transferred to a subsidiary and then the shares in the subsidiary are transferred to the buyer, which can generally be made tax exempt.

Transfer Pricing Rules

The Swedish transfer pricing legislation corresponds to the OECD model legislation.

Interest Limitation Rules

Sweden does not have any thin capitalisation rules. However, a general EBITDA-based interest deduction limitation was introduced on 1 January 2019. Accordingly, negative net interest expenses (as defined under Swedish law) may only be deductible up to a maximum of 30% of a company’s profit before tax, interest, depreciation and amortisation (EBITDA). A safe harbour rule applies, under which negative net interest expense up to SEK5 million is deductible.

In addition, there are special interest deduction limitation rules for certain intra-group loans. To the extent interest on intra-group loans is deductible, it will be subject to the above-mentioned EBITDA-based rule.

Anti-hybrid Rules

Sweden has implemented the hybrid rules contained in the EU Anti-Tax Avoidance Directive.

General Anti-avoidance Rules

A transaction may be considered an act of avoidance and disregarded for tax purposes in the following circumstances:

  • if the transaction – alone or in conjunction with another transaction – results in a significant tax benefit for the tax payer;
  • if the tax payer is, directly or indirectly, a party to the transaction;
  • if such a tax benefit is assumed to have been the predominant reason for the transaction; and
  • if taxation on the basis of the transaction would be in violation of the intent of the law.

Introduction

The so-called Swedish labour market model is most significant to understand Swedish employment law and practice. In essence, the Swedish government has largely left the labour market to be regulated by employers’ associations and trade unions. For example, there are no statutory minimum wages; instead, salaries are agreed between the labour market parties in collective bargaining agreements.

Due to this model, Swedish employment legislation is sometimes described as a patchwork. And even when there is legislation on a specific matter, many requirements may often be circumvented or replaced by terms and conditions in a collective bargaining agreement.

There are no universally applicable collective agreements, but the vast majority of employees in the Swedish labour market (approximately 90%) are covered by a collective bargaining agreement.

Consultation Obligations and Board Representation

An employer bound by a collective bargaining agreement must consult with the trade unions on a range of issues, but employers not bound by any collective bargaining agreement are only obliged to consult with a trade union before making certain decisions that particularly affect a member of that trade union (including redundancy and transfer of undertaking, business or part of business).

Labour disputes are mostly settled by negotiations.

In companies with at least 25 employees and where there is a collective bargaining agreement in place, the employees are entitled to appoint their own representatives to the board.

Termination

As a general rule, an employer’s decision to close down or reorganise its business cannot be questioned. However, in a redundancy situation, the employer may not arbitrarily decide which employees are to be made redundant. Instead, the principle of “last in – first out” generally applies, meaning that more senior employees may push out employees with shorter length of service, provided that they meet the minimum qualifications for the remaining work.

As opposed to redundancy, termination due to reasons relating to the individual employee is only possible in exceptional cases. For example, inefficiency or unsatisfactory performance is very seldom considered a reasonable ground for dismissal.

Other

Another feature of Swedish employment law is a relatively strong right to certain leaves, particularly parental leave but also leave for studies, for example.

An employer not bound by a collective bargaining agreement only needs to pay salary (no minimum wage) and vacation benefits, including social security contributions. However, many employers will usually offer some type of pension benefit and insurance.

A collective bargaining agreement, on the other hand, will usually provide for a range of benefits, including occupational pension, group insurances, parental benefits, overtime compensation, etc.

Employee compensation will typically not be addressed in connection with a transaction, although it is not uncommon for sellers to offer retention bonuses for key employees and for buyers to adopt long-term incentive programmes for management. Occasionally, there are change of control protections for senior executives, often structured as a right for the senior executive to terminate the employment within a certain period of time and receive a severance package in case of a change of control.

In the event of a transaction, the employment implications will depend on the type of transfer.

Share Transfer

Employees’ positions will not be affected by a share transfer and no statutory rights are triggered, so employees of a target company remain employed on unaltered terms. The target company will not have to consult with the trade unions (if any) regarding the transfer.

Transfer of Business

In the event of a business transfer, employees will automatically transfer on unaltered terms to the buyer, unless the employees oppose the transfer. Employees’ accrued vacation benefits and length of service with the previous employer will also transfer. However, individual pension entitlements and accrued pension liabilities will not transfer to the buyer, unless otherwise agreed. When part of a business is transferred, only the employees belonging to that part will be transferred. A transfer in itself is not considered to be a ground for termination.

A buyer who is not bound by a collective bargaining agreement will be bound by the acquiring business’ collective bargaining agreement (if any).

A transfer of undertaking must always be preceded by consultation(s) with the relevant trade union(s).

As set out in 7.1 Applicable Regulator and Process Overview, Sweden does not currently have any FDI screening rules. Consequently, intellectual property is not mentioned as a particularly important aspect in such context.

It should be noted, however, that the amendments to the Protective Security Act (also referred to in 7.1 Applicable Regulator and Process Overview) may apply in a transfer of property that is deemed to be important from a Swedish security perspective. According to the preparatory works, such property could be intellectual property (eg, technologies, innovations or drawings). As set out in 7.1 Applicable Regulator and Process Overview, the legislator has intentionally kept the scope of the regulation flexible, not clarifying what properties shall be considered important from a Swedish security perspective and thus fall within the scope of the requirements in the Protective Security Act.

Sweden provides for strong intellectual property protection, in terms of the possibility to obtain intellectual property protection and the possibility to enforce such rights. To obtain protection for an invention (ie, a patent) or design, registration with the relevant authority is required. That is generally the case for trade marks as well, although trade mark protection may also be afforded if the trade mark has acquired distinctiveness among the relevant customers through actual use by the trade mark holder. Protection for copyright is acquired upon the creation of the copyrightable work.

Sweden has entered into various material international conventions in the area (eg, the Paris Convention for the Protection of Industrial Property). Such conventions do not apply directly as Swedish law, but need to be implemented in Swedish legislation. The intellectual property legislation in Sweden is also harmonised with the legislation applicable in other Member States of the EU, pursuant to a number of EU directives.

In general, there are no significant limitations on protection or enforcement as regards intellectual property rights under Swedish law, except for those applicable under international conventions (such as the right to create private copies of copyrighted works) and pursuant to EU directives (eg, that software is not patentable as such).

The laws on patents and copyright include provisions on compulsory licensing. For example, a court may decide that a patent shall be licensed if the invention protected by the patent is not used or if another patent is dependent on a previous patent. Under the Swedish Copyright Act, under certain circumstances, an organisation that represents various creators could enter into a licence agreement regarding the use of copyrightable works, which could also include works that are created by creators not being represented by the organisation.

Regulation (EU) 2016/679 (GDPR) applies in Sweden, where it is complemented by the Swedish Act with supplementary provisions to the EU Data Protection Regulation, but the GDPR includes the most material data protection laws.

The GDPR has a broad territorial scope and does not only apply within Sweden or the EU: it also applies to the processing of personal data of individuals who are in the EU, even if the company conducting the processing is established elsewhere, if the processing activities are related to the offering of goods or services to such individuals or the monitoring of such individuals’ behaviour.

In 2019, the Swedish Data Protection Authority (the supervisory authority for the GDPR) established a two-year supervision plan with certain areas of particular interest (inter alia, facial recognition and using consent as legal basis). The supervisory authority conducts ad hoc supervisions in these areas, but could also initiate reviews of specific areas in case of a reported incident, for example.

Acting in breach of the GDPR can result in the imposition of an administrative fine of up to EUR20 million or 4% of a company’s annual global turnover, whichever is the highest. In general, the size of the fine depends on several circumstances – eg, what regulation the non-compliant party is in breach of and the consequences for the individuals.

There are no other significant issues.

Mannheimer Swartling

Norrlandsgatan 21
Box 1711
111 87 Stockholm
Sweden

+46 8 595 060 00

+46 8 595 060 01

isabella.ramsay@msa.se www.mannheimerswartling.se/en
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Trends and Developments


Authors



Mannheimer Swartling is the leading business law firm in Sweden. It employs around 600 persons in total, practising out of offices in Sweden, Belgium, Russia, the USA and Singapore. It is an independent firm, but is able to provide seamless service to clients across all jurisdictions through its extensive network. The firm includes more than 100 M&A lawyers, supported by class-leading specialists in all business law areas. The team has the scope and scale to credibly handle the largest and most complex local and cross-border M&A mandates. Recent assignments include advising Scandinavian Airline Systems on its recapitalisation to address the effects of the COVID-19 pandemic.

Activity on the Market

After a slow spring affected by the COVID-19 crisis, the Swedish M&A market picked up again in the summer, with both deal values and volumes up to levels well comparable with previous busy years. As elsewhere, the market has been affected by COVID-19, Brexit, global tensions and trade wars.

A lot of the activity on the Swedish market is driven by private equity funds active in the region. There are quite a few local PE houses active on the market, but there are occasional deals involving larger international PE houses as well.

In the wake of the pandemic, there were concerns that foreign buyers would take the opportunity to make hostile acquisitions, but that has not yet occurred in Sweden to any large extent. However, due to COVID-19, a screening mechanism based on national security is now being introduced (see more below).

A few sectors currently stand out as attracting particular investor interest. Firstly and not too surprisingly, there is great interest in tech companies, including start-ups being picked up by larger corporates. Sweden has several large actors in the fintech sector, such as Klarna, Bambora and Trustly, but also a vibrant community of entrepreneurs creating new start-ups backed by investors throughout their different stages of evolvement. Secondly, as is often the case in uncertain times, the interest in infrastructure assets is high. This is true both in relation to more traditional assets, such as gas pipelines, ports, etc, and also in relation to projects in the area of renewable energy, such as wind parks. Having said this, Sweden still has a strong tradition of sustaining both large, international industrial companies as well as a developed and active private equity market, where general M&A activity remains strong.

There has been an increasing number of large carve-out and spin-off transactions during the last couple of years, as industrial clients have focused their operations. One recent notable example is Electrolux’s separation and subsequent listing of Electrolux Professionals in 2020, but there are also a large number of examples involving non-listed companies, such as Consilium’s recent divestment of its Marine & Safety business to Nordic Capital.

Another type of deal that has been trending during recent years is "buy-and-build" strategies backed by PE houses. There are numerous sectors where consolidation is ongoing, with a recent example being the dental industry. A couple of years back, the veterinary business underwent a similar, very successful consolidation backed by EQT on the one hand, and by Nordic Capital on the other.

The public M&A and ECM market is in an interesting state where both public bids and IPOs are occurring in parallel with capital raisings (primarily in certain sectors strongly affected by COVID-19). With the stock market being an attractive alternative, there are (formal or informal) dual tracks in relation to exit processes. Nasdaq Stockholm and Nordic Growth Market NGM are the two regulated markets in Sweden, but the former is by far the dominant market and is considered the most attractive. The multilateral trading facilities (MTFs) – Nasdaq First North, NGM Nordic SME and Spotlight Stock Market – also attract interest from smaller companies. As an example, Nasdaq First North saw 16 new listings in 2020, and there were ten public takeover offers on Nasdaq Stockholm in December 2020 alone. Some of these have in fact been backed by PE houses, which has not been seen for a couple of years. Another trend in relation to listed companies during the last couple of years is that there has been increased activity among listed real estate companies.

The preferred strategy when divesting on the private M&A market is still by marketing the target through an auction, at least from the outset. As mentioned above, there are occasional dual tracks for attractive targets, with an IPO being considered in parallel with a trade sale track. During 2020, more targets were ultimately sold after bilateral negotiations, where one bidder pre-empted the auction mid-process. Actors are looking for deal certainty and, with many other uncertainties on the market, a bilateral deal may be considered more attractive, under certain circumstances. Having said that, the past six months have seen increased deal uncertainty in share purchase agreement terms and conditions, as financing outs and material adverse change conditions have again entered the stage after a few years of minimal conditions to closing. Also, it remains to be seen how the wave of newly implemented FDI regulations around the world will affect M&A processes. Sweden is no exception in this regard, as further outlined below.

National Security

Sweden currently has no general FDI screening and blocking rules for ownership changes. There are of course sectors where an ownership assessment may be required, such as the financial sector, but Sweden has had no overall FDI scheme to date.

However, a fast-tracked initiative, triggered by the COVID-19 outbreak, was implemented on 1 January 2021, by means of a revamping of the Protective Security Act. According to these amendments, a seller of assets or shares in a company that engages in activities covered by the act is obliged to consult with the competent authority. The act covers "whoever is engaged in activities of importance to Sweden’s security or who is otherwise covered by a legally binding international commitment by Sweden regarding protective security." There is no exhaustive list of sectors, but examples such as civil infrastructure (airports, energy and telecom) are mentioned in the preparatory works.

The government has appointed the Swedish Security Service and the Swedish Armed Forces as the primary competent enforcement authorities. The legislation is not very comprehensive, and the process for seeking clearance, etc, has not yet been established, nor is there any detailed information on timing, etc. An agreement or item sold in violation of a blocking decision is automatically deemed null and void. A transaction completed without the required consultation with the responsible authority may be subject to subsequent review; should the authority find that the transaction ought to have been blocked, said transaction may also be deemed null and void.

Sweden is also preparing for a more comprehensive FDI screening scheme, but a proposal is not expected to be presented until 2021/2022.

M&A Insurance

Representations and warranties (R&W) insurance is well established on the Swedish market, and many sellers are seeking deal protection by preparing for an R&W insurance solution to be put in place from the start of the sales process. An insurance solution takes away some of the tensions relating to the risk allocation between the seller and the buyer. There are brokers focusing on the Swedish market, but in the end policies are placed on the international market. There are well-established procedures for how the policy is put in place, and auctions, etc, are structured around it. With R&W insurance being so well established on the market, a bidder should perhaps not expect the seller to accept extensive representations and warranties if R&W insurance is an alternative.

Sustainability

Many companies place sustainability high on the corporate agenda, which translates into a higher focus on sustainability in the M&A context. Many actors are developing a more systematic approach towards sustainability, both on a day-to-day basis and in the context of due diligence. The focus on human rights and labour conditions has increased, alongside raised interest in environmental and anti-corruption issues. In parallel with a broadening of the areas of interest from a sustainability perspective, companies are also looking closer into each area by covering more steps in the value chain. The implementation of the EU’s classification of sustainable activities (the Taxonomy Regulation) is likely to increase this focus further – eg, a PE firm may be required to classify its investments based on the new taxonomy going forward.

In M&A transactions, the concept of environmental, social and governance (ESG) issues is often used to encompass sustainability issues. There are several ways in which ESG issues may play a role in M&A transactions. They may add value in and of themselves, for example, when a buyer is looking to acquire a well-developed, sustainable business to access knowledge and experience that may improve resource efficiency, and thus cost efficiency, in the buyer’s operations. Gaps between the buyer and the target business in terms of attitude towards and the handling of ESG issues may increase integration costs, and therefore must be taken into account by the buyer when evaluating a target company. ESG issues may also entail high costs and negative publicity if they come with – for example – the risk of severe contamination, demands for emission reductions and efficiency increases, direct or indirect violations of human rights, poor working conditions, the risk of corruption, etc – whether these are systematic issues, single incidents or just rumours.

Many ESG risks lie with the target company’s contracting parties, such as suppliers and distributors. This makes it more difficult to adequately address the matter within the transaction, both in terms of due diligence and in relation to contractual protection. A seller rarely accepts guarantees related to third parties. It is also often difficult to assess the damage in relation to an ESG matter – the loss may be mainly reputational (but of course, as such, connected to a cost).

It is becoming standard to include sustainability in the due diligence review of a target company. ESG issues are not easily identified or quantified, so finding actual problems requires an extensive, in-depth analysis, which often does not fit well with the process or within the project budget. Furthermore, a seller is often unwilling to allow such in-depth due diligence, particularly in competitive processes. To find a reasonable balance between cost and buyer comfort, a sustainability due diligence review can be undertaken in several steps.

General risks are identified based on the target company’s industry, geography (including suppliers at various levels) and specific operations and business model. The target company’s risk management is evaluated through an analysis of its codes of conduct and other policy documents, processes and routines, general awareness about ESG issues, etc, which will give a fairly good view of whether the company may have enhanced ESG risks. If these assessments identify particular risks, one may consider a more thorough review, including local or technical expertise. With increased understanding of the target’s ESG risk profile, the buyer can decide whether to withdraw from the transaction, to consider the related costs in the bid or to seek contractual protection. In any event, the buyer will be in a position to plan the post-closing improvement of the target’s sustainability efforts.

Once an acquisition has been made, sustainability should be included in the integration plan so that any issues can be addressed and documented from the start of the investment. By working with the risks at hand, the owner will not only drive development in the area, but will also increase the value of its holding.

Mannheimer Swartling

Norrlandsgatan 21
Box 1711
111 87 Stockholm
Sweden

+46 8 595 060 00

+46 8 595 060 01

isabella.ramsay@msa.se www.mannheimerswartling.se/en
Author Business Card

Law and Practice

Authors



Mannheimer Swartling is the leading business law firm in Sweden. It employs around 600 persons in total, practising out of offices in Sweden, Belgium, Russia, the USA and Singapore. It is an independent firm, but is able to provide seamless service to clients across all jurisdictions through its extensive network. The firm includes more than 100 M&A lawyers, supported by class-leading specialists in all business law areas. The team has the scope and scale to credibly handle the largest and most complex local and cross-border M&A mandates. Recent assignments include advising Scandinavian Airline Systems on its recapitalisation to address the effects of the COVID-19 pandemic.

Trends and Development

Authors



Mannheimer Swartling is the leading business law firm in Sweden. It employs around 600 persons in total, practising out of offices in Sweden, Belgium, Russia, the USA and Singapore. It is an independent firm, but is able to provide seamless service to clients across all jurisdictions through its extensive network. The firm includes more than 100 M&A lawyers, supported by class-leading specialists in all business law areas. The team has the scope and scale to credibly handle the largest and most complex local and cross-border M&A mandates. Recent assignments include advising Scandinavian Airline Systems on its recapitalisation to address the effects of the COVID-19 pandemic.

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