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Swedish profit cap on welfare firms seen breaching EU law
September 29, 2016 / 9:11 AM / a year ago

Swedish profit cap on welfare firms seen breaching EU law

STOCKHOLM, Sept 28 (Reuters) - A proposal to cap private companies’ profits in Sweden’s tax-funded welfare sector would likely breach of EU law, legal experts said, increasing the chance the centre-left government’s goal of curbing big business will be watered down or abandoned.

Shares in companies like healthcare provider Capio and school operator AcadeMedia have been under pressure since a leaked report in August that a government study would propose an inflation-indexed profit ceiling of 8 percent on invested capital for tax-funded welfare firms.

Investigator Ilmar Reepalu who will publish the investigation on Nov. 8 said a profit cap could be introduced without breaking any laws.

But experts say authorities would face a stream of legal actions.

“The foundation of EU is that everybody is treated equally. That’s not the case here when companies who make a certain profit can’t be part of a public procurement,” Andrea Sundstrand, assistant professor at Stockholm University, said.

“Sweden cannot make up its own exceptions (to EU law), that has to be done in Brussels, together with all member states.”

With the threat of a profit cap fading, a 2.1 billion Swedish crown ($245 million) IPO of shares the Internationella Engelska Skolan IPO-ENGEL.ST was 25 times over subscribed on Thursday. CEO Ralph Riber said the leak of the 8 percent cap was “just a trial balloon from the investigation to gauge the political atmosphere”.

In 2014, Swedish regions and municipalities bought services for almost 120 billion crowns from private welfare companies, double the level from eight years earlier.

But reports of abuse in care homes and pupils shut out of bankrupt schools, coupled with rich pickings for firms offering housing for asylum seekers have provoked widespread anger in Sweden and the minority centre-left coalition has promised to tackle abuses.

Private equity companies, with funds often based in offshore tax havens and which own many welfare firms, have come under particular scrutiny.

Prime Minister Stefan Lofven has said tax money should not “go to the Cayman Islands”.

The government study estimated a cap of 8 percent would cut profits by around 15 billion Swedish crowns ($1.76 billion).

But the proposal has attracted widespread criticism.

“If implemented, it will lead to a nationalisation of Swedish welfare,” said opposition Center Party leader Annie Loof.

Daniel Stattin, professor in company law at Uppsala University, said watertight legislation would be hard to frame while accounting loopholes would make any such law easy to circumvent.

“It would complicated, hard to apply and would be nothing but a pointless gesture,” he said.

Lofven will also struggle to get such a bill through parliament. The Moderates - the biggest opposition party - and the anti-immigration Sweden Democrats have said they would vote against a deal.

Centre Party leader Loof said her party would not support a profit cap, but was willing to cooperate with the Social Democrat-Green government on ways to improve standards in tax-funded welfare.

The Moderates have also called for stricter quality standards to be written into contracts between the public and private sectors and for a special license for welfare service providers.

The Social Democrats, however, remain loath to drop the voter-pleasing threat to big business and Ardalan Shekarabi, Minister for Public Administration said the government is still considering a profit cap.

“Yes, if it is a solution to the problem we see and if the negative consequences are not that big,” he said. ($1 = 8.5665 Swedish crowns) (Reporting by Johan Sennero; Editing by Simon Johnosn)

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