Sweden Issues a Draft Law to Implement the OECD Side-by-Side Tax Package

On March 25, 2026, the Swedish Finance Ministry issued Draft Law Fi2026/00780 for consultation. The Draft Law would amend Law 2023:875 which is Sweden’s Pillar Two statute, already amended by SFS 2024:1248 and SFS 2025:1461. 

Key aspects of the Draft law include:

-The inclusion into Swedish law of most of the January 2026 OECD Side-by-Side Package (the Side-by-Side Safe Harbour, the UPE Safe Harbour, the Substance-based Tax Incentive Safe Harbour, and the one-year extension of the Transitional CbCR Safe Harbour).

-The implementation of the January 2025 OECD administrative guidance on Article 9.1 transition DTAs/DTLs and the June 2024 guidance on blended CFC tax regimes.

-A series of amendments to domestic law to tighten the application of the EU Minimum Tax Directive/OECD Model Rules.

The proposed entry into force is 1 January 2027, with elective earlier application generally from fiscal years beginning after 31 December 2024. However, the new SBTI and SbS/UPE safe-harbour rules would only be available from fiscal years beginning after 31 December 2025.

Key amendments are:

kap. 10 § – demergers and the EUR 750 million threshold

The proposed text makes clear that, where a group in scope is split into two or more groups, the revenue threshold in 1 kap. 3 § is tested for each resulting group separately, and that the first relevant year is the first fiscal year ending after the demerger, which includes the demerger year itself. The memorandum says this aligns the Swedish rule with Directive 2022/2523, Articles 33.1(b) and 33.4, and with Model Rules Articles 6.1.1(c) and 6.1.3.

The Explanatory Notes explain why the change is needed, and identifies three misalignment risks in the current wording: first, the current text can be read as applying only where the group was already in scope in the year before the tested year, rather than in the demerger year; second, the text could suggest a combined assessment of the post-demerger groups instead of a separate test for each demerged group; and third, the second-to-fourth-year limb needed clarification that the first year counted is the fiscal year ending immediately after the demerger.

kap. 1 § and new 17 a-17 d §§ – the Substance-based Tax Incentive Safe Harbour

A new 4 kap. 17 a–17 d implements the Substance-based Tax Incentive Safe Harbour (SBTI Safe Harbour) from section 4 of the OECD January 2026 package, but it is doing so through a domestic election that increases adjusted covered taxes rather than through a chapter 8 safe harbour format. The proposal provides that  this is deliberate. Because the mechanism works by increasing tax expense, it fits better in chapter 4 (elections affecting adjusted tax expense) than in chapter 8.

17 a  – the core election and the substance cap

Under 17 a §, the reporting entity may elect, for purposes of the ETR calculation in 3 kap. 37 §, to increase the aggregate adjusted covered taxes of the constituent entities in a jurisdiction by the tax effect of a qualified tax incentive. The uplift is capped at the greater of: 5.5% of payroll costs under 5 kap. 3 §, or 5.5% of the accounting depreciation/depletion on eligible tangible assets under 5 kap. 4 § in that jurisdiction. The provision also contains two technical refinements: payroll includes the capitalised labour costs referred to in 5 kap. 3 § second paragraph, and the depreciation limb excludes assets covered by 5 kap. 4 a §.

The section then offers an alternative cap: instead of the default 5.5% formula, the reporting entity may elect a cap of 1% of the carrying value of eligible tangible assets in the jurisdiction, excluding land, other non-depreciable assets, and 5 kap. 4 a § assets. That election is a five-year election, and the proposal contains an anti-duplication rule on revocation so that assets previously sheltered under the carrying-value method are excluded from the normal depreciation-based cap after withdrawal. This tracks the OECD’s design in the January 2026 package.

The SBTI Safe Harbour is meant to neutralise top-up tax attributable to tax incentives linked to real substance, because those incentives are considered less susceptible to BEPS concerns. Sweden’s section 17 a reproduces that logic. The practical implication is that the relief is deliberately substance-limited. As  such groups with generous local credits but thin payroll and fixed-asset footprints may still have residual top-up tax; capital-intensive or payroll-heavy groups should be the main beneficiaries.

17 b – what counts as a qualified tax incentive

New 17 b § defines a qualified tax incentive as a generally available tax incentive, to the extent it is expenditure-based or production-based. The section also says that a tax incentive is one that reduces the cost of current or future covered taxes. An expenditure-based incentive must be linked to expenditure already incurred when the incentive is granted, and the tax effect of that incentive plus other incentives for the same expenditure cannot exceed the underlying expenditure. A production-based incentive is one based on the volume of tangible assets, including electricity, produced in the jurisdiction.

This is very close to the OECD text. The Swedish memorandum also explains that purely income-based regimes, such as preferential rate regimes of the patent box type, do not qualify unless they are directly tethered to qualifying expenditure in the way contemplated by the SBTI design. It further stresses that accelerated timing differences are not enough: accelerated depreciation is already dealt with through deferred tax mechanics, so the SBTI regime is not meant to duplicate the relief for temporary timing differences.

17 c – the tax effect formula