On November 20 2025, the Swedish government published a referral to the Council on Legislation for consideration (the Referral) proposing an exemption from withholding tax (WHT) for public bodies, including sovereign states as such.
The Referral is a consequence of the Court of Justice of the European Union (CJEU) ruling in Keva, et al v Skatteverket (C-39/23), where the CJEU stated that the Swedish Withholding Tax Act (WTA) is incompatible with the freedom of movement of capital under Article 63 of the Treaty on the Functioning of the European Union (TFEU).
Background
The Swedish Supreme Administrative Court requested a preliminary ruling from the CJEU regarding Keva, a Finnish public pension institution. The CJEU and, subsequently, the Supreme Administrative Court held that the difference in tax treatment of Keva and the Swedish public pension funds concerned situations that are objectively comparable for tax purposes and that the differential tax treatment therefore constituted a restriction on the free movement of capital under Article 63 of the TFEU.
As a result of the Keva case, the Swedish government proposed amendments to the WTA. The Referral exempts the following foreign equivalents of Swedish tax-exempt entities from withholding tax:
• Foreign states in the European Economic Area (EEA);
• Foreign states that have entered into a tax treaty with Sweden containing an article permitting the exchange of information in tax matters or a special agreement for such exchange of information; and
• Foreign equivalents of Swedish regions, municipalities, or associations of municipalities located in a state listed above.
Arguments in the Referral
In the Referral, it is proposed not only to include foreign public pension institutions but also foreign entities equivalent to Swedish tax‑exempt public law entities. This follows from the reasoning of the CJEU in the Keva case, in which “comparable situations” was held to extend to other public law entities whose tax exemption is based on grounds equivalent to those applicable to the Swedish state.
To ensure compliance with EU law, amendments to the WTA are required, and the Referral therefore proposes an exemption from withholding tax for foreign equivalents of foreign states, regions, municipalities, or associations of municipalities.
Although foreign states rarely hold shares in Swedish companies in their own name, this has influenced the structure of the Referral. The Referral reflects an understanding that many foreign public authorities and other public law entities that are part of a foreign state engage in asset management as part of their statutory functions. Accordingly, the term “foreign state” is interpreted broadly to include bodies governed by public law, such as governmental agencies and public pension institutions, whose activities mirror those of Swedish equivalents. A state-owned company should, however, likely not qualify.
In assessing whether a foreign entity should be regarded as an equivalent under the Swedish framework, the analysis must therefore consider both Swedish and foreign legal perspectives. The free movement of capital extends to third countries, which necessitates the inclusion of states outside the EEA.
The exemption is proposed to enter into force on July 1 2026.
KPMG’s commentary
The Referral implies that a broader range of entities would qualify for an exemption from Swedish WHT than under the current framework. This expansion may arguably include certain sovereign wealth funds (SWFs), which are state-owned investment funds that governments use to invest public capital to stabilise the country’s economy.
Importantly, it is not determinative that these investments are not made in the foreign state’s name. Based on the authors’ understanding, the Referral covers entities that form part of a foreign state and that conduct asset management activities as part of their governmental function, a criterion that SWFs generally should meet.
Provided that an SWF can be considered objectively comparable to a Swedish tax‑exempt entity, belongs to a foreign state within the EEA, or has entered into a tax treaty or special agreement with Sweden as described above, it may be entitled to a refund of Swedish WHT in connection with its investments in Swedish companies.
Since the proposed exemption can be viewed as merely an implementation of EU law and CJEU case law, the exemption can arguably be said to be already applicable in practice, and refunds of WHT should be granted retroactively for up to five years.
To apply for such refund, an application must be sent to the Swedish Tax Agency.
