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Erik Hultman |
Niklas Cornelius |
The Court of Justice of the European Union has in repeated rulings concluded that the levying of withholding tax on dividends paid to foreign persons or entities constitutes a restriction on the free movement of capital (article 63 of the TFEU) if dividends received by a domestic comparable person are tax exempt. Swedish investment funds were exempted from income tax liability as of January 1 2012. In practice, however, the funds did not pay tax before this either due to deductions being allowed for redistributed profits. In contrast, non-Swedish investment funds were (and still are) in general liable to a 30% withholding tax on dividends paid by Swedish companies.
In connection with the introduction of a tax exemption for domestic investment funds the Swedish withholding tax legislation was also amended so that a foreign investment fund, which is deemed to correspond to a Swedish investment fund, is exempted from withholding tax provided that the foreign fund is domiciled within the EEA or in a country with which Sweden has concluded a tax treaty (containing an article on exchange of information) or a tax information exchange agreement.
According to Swedish case law, European UCITS IV compliant funds should be considered as comparable with Swedish investment funds and entitled to refunds of Swedish withholding tax on dividends under EU law (or under domestic Swedish rules with respect to withholding tax paid after January 1 2012). The Swedish Tax Agency has, however, continued to refuse refunds of withholding tax to non-European funds, for example with respect to claims for refunds filed by US investment funds (Regulated Investment Companies (RICs)). The Swedish Tax Agency has in these cases argued that the claimants should not be considered as comparable to Swedish investment funds.
Rulings from the Administrative Court of Appeal
The Swedish Administrative Court of Appeal (second instance) has in a number of recent cases ruled on withholding tax claims filed by US RICs. After making a thorough review of the characteristics of the US RICs, the court concludes in its rulings that the claimants should be seen as comparable to Swedish investment funds, and that the levying of withholding tax on dividends paid to the funds constitutes a restriction on the free movement of capital which cannot be justified.
The Swedish Tax Agency has decided to accept the outcome of the cases and not file appeals. This should mean that US RICs which can support a claim for comparability should be entitled to refunds of paid Swedish withholding tax.
The rulings from the Administrative Court of Appeal regarding US RICs are the first rulings from Swedish upper courts concerning the comparability of non-European funds to Swedish investment funds. The rulings are likely to pave the way also for claims filed by investment funds domiciled in other non-European jurisdictions than the US.
Erik Hultman (erik.hultman@se.ey.com) and Niklas Cornelius (niklas.cornelius@se.ey.com)
EY
Tel: +46 8 520 594 68 and +46 8 520 595 61
Website: www.ey.com
