In 1990 the biggest tax reform took place in Sweden, and we went from a uniform tax system and converted to a dual model for taxation. This meant that different incomes are going to get treated differently depending on what type of category the income is attributed to. The focus of this essay is to examine and analyse the changes that impacted regulations regarding close companies.The changes gave close companies taxation reliefs and made it easier to accrued large sums of wealth with a low tax rate. Though the reforms were initially made to prevent income manipulation it become an overly complex and flawed system. In the Swedish taxation system, there’s always been a focus on neutrality when making law changes. The principle of neutrality must always be at the forefront.The principle of neutrality can best be explained by professor Pålsson. “The principle is an expression of an objective, meaning that the taxpayer's choice between different courses of action should not be influenced by the design of tax regulations”. Unfortunately, today the system does not fulfil this objective, meaning that individuals mostly make decisions based on what gives the most beneficial taxation outcomes.Over the years the legislation regarding closed companies has also grown into a rather controversial and important political question. Where individuals stand on taxation is usually very connected to a political ideology. And through out the years it has become more of a political question and a way for politicians to exercise their ideas rather than the actual issue which is to develop a fair and equal taxation system for all citizen’s where the principle of neutrality is at the centre.The purpose of this paper is therefor to explain and analyse how the principle of neutrality have impacted the legislation regarding closed companies. Besides the legal principle which is at the forefront of this essay we will also analyse the political element when it comes to these issues because we do believe them to be a very prominent and important factor to answer these complicated issuesOur conclusion is that the regulations today does not meet the requirements when it comes to the principle of neutrality. As we previously mentioned the rules today are overly complicated and needs to be reformed. Balancing the interests of business owners, politics and meanwhile maintaining the necessary measures when it comes to prevention of income manipulation has become too big of a task for the current legislation