Sweden: Are non-Swedish pension funds discriminated under EU law when liable to Swedish withholding tax?
International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX
Copyright © Legal Benchmarking Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Sweden: Are non-Swedish pension funds discriminated under EU law when liable to Swedish withholding tax?



Erik Hultman

Niklas Cornelius

The European Court of Justice (ECJ) has in repeated rulings established that it is contrary to the free movement of capital to levy withholding tax (WHT) on dividends when dividend income received by a domestic comparable person/entity is not subject to a corresponding tax burden.

WHT reclaims filed by non-Swedish pension companies

A number of non-Swedish pension companies and pension funds have initiated court procedures in Sweden in order to reclaim Swedish WHT. The claims are based on the case law developed by the ECJ.

Under Swedish tax legislation, dividends to foreign pension companies and pension funds are subject to WHT on the gross amount, while Swedish pension institutions (life insurance companies and pension trusts) are in effect subject to a specific tax paid on a notionally calculated yield, based on the government interest borrowing rate and the value of the funds' assets, after a deduction of financial costs. As a result, the effective tax rate on dividends received by these resident pension institutions may from time to time be lower than the 15% withholding tax rate that is normally applied to non-resident pension funds. It is worth noting that according to Swedish legislation, non-resident pension companies and funds are subject to WHT on dividends. The domestic WHT rate amounts to 30%. It may generally be reduced to 15% or 10% under Swedish tax treaties.

It is clear that from an EU law perspective it should in principle be allowed for member states to use different techniques for taxation depending on the domicile of the taxpayer. It seems reasonable, however, to believe that this is only valid if the outcome is not discriminatory. The result of the different taxation techniques in Sweden for domestic and foreign pension institutions is, however, somewhat difficult to assess as it will vary from year to year and also depend on what the normal general interest rates should be considered to be.

Request by the European Commission

The European Commission has requested that Sweden amends its WHT legislation with respect to foreign pension funds. The last request, which took the form of an additional reasoned opinion (the second stage of an infringement procedure) was issued on March 22 2012. The Swedish Government has, however, defended the Swedish levying of WHT on dividends paid to foreign pension companies, arguing, inter alia, that the tax burden of Swedish domestic life insurance companies over a longer period of time, and under more normal general interest rates, can be expected to be at least as heavy as the WHT burden that non-Swedish pension funds are subject to.

Leave of appeal

The Swedish Supreme Administrative Court released notifications in June 2013 that it will grant leave of appeals for cases filed by a Finnish pension company and a Belgian pension fund, respectively.

The outcome of the cases should be of interest for many non-Swedish financial institutions whose Swedish equivalents are taxed on a notionally calculated yield, as favorable rulings may create WHT reclaim opportunities.

Erik Hultman (erik.hultman@se.ey.com)

Tel: +46 8 520 594 68

Niklas Cornelius (niklas.cornelius@se.ey.com)


Website: www.ey.com

more across site & bottom lb ros

More from across our site

Sharma, managing director for A&M in the United Arab Emirates, tells ITR about intense time pressures, mimicking Jurgen Klopp and what makes tax cool
AI will speed up some of the most laborious TP processes without making human input redundant, argues Hank Moonen, CEO of TaxModel
Firms with a broad geographic reach are more likely to win work, especially from global companies with high turnovers, according to survey data of nearly 29,000 corporate counsel
Australian businessman Gordon Merchant used EY’s advice to offset an A$85 million capital gain, according to the Federal Court
Griggs has been drafted in ahead of schedule as the incumbent Tim Ryan departs for Citigroup; while the Netherlands plans to scrap a 15% share buyback tax
Authorities must ensure that Russian firms do not use transfer pricing schemes to increase profits made from oil sold in different markets, advocacy organisations have argued
Fallet, a partner at law firm Mauger Muniz Advogados in Brazil, tells ITR about his passion for tax law, the leaders who inspired him, and what makes tax cool
The former chief operating officer will assume the role on July 1
Ahead of next week's Indirect Tax Forum in London, ITR spoke with Christian Van Der Valk of Sovos about how different governments and companies are embracing e-invoicing
Konrad Jeczewski has alleged he was threatened with negative reviews before being made redundant by EY Australia
Gift this article