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

Sammanfattning

This thesis evaluates the effects of Sweden’s 2013 reform, tightening the deductibility ofintra-group interest expenses, an anti-avoidance measure targeting profit shifting throughinternal debt. Using firm-level panel data from the Serrano database covering Swedishgroup firms with 100 or more employees over 2005–2015, we estimate a three-perioddifference-in-differences specification that also accounts for the narrower 2009 interestlimitation rules. Treated firms are identified through intra-group interest flows combinedwith firm-level persistence in the use of the channel.We find indications that over the sample period intra-group interest expense among treatedfirms decreased, both in absolute terms and relative to total assets. This reduction did nottranslate into a higher corporate tax burden. Treated firms also significantly increased theiruse of group contributions, preserving aggregate tax efficiency through a substitute channel.We find no robust evidence that real economic activity contracted. The results suggestthat interest limitation rules can close targeted channels but leave overall tax-planningcapacity intact when substitutes remain available.