Refund of withholding tax on dividends paid to foreign investment funds within the EU.

WebJournal on International Taxation in Sweden (WITS) no 3/2012 March
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On 15 February the Tax Appeals Court (kammarrätten) in Sundsvall delivered 16 judgments ordering a refund of Swedish dividend withholding tax (kupongskatt) to foreign investment funds situated in the Community.

Swedish investment funds may deduct distributions made to their investors which of course is an incentive to make such distributions reducing the corporate tax base of the fund. Dividends paid to foreign investment funds, however, do not enjoy the same deduction and are also liable to Swedish dividend withholding tax at 30 percent or applicable treaty rate, in most cases 15%. Such funds are thus treated in a less favourable way than Swedish investment funds under the same conditions. The Court has thus ruled that the Swedish tax rules are unjustifiably in breach of the EU principles of free movement of capital and consequently that the taxes paid should be refunded.

Somewhat surprising is that the Court has not applied for an advance ruling by the European court of Justice.

Still pending are applications for refund of Swedish dividend taxes paid by investment funds outside the EU/EES and foreign pension funds.

It is expected that the ruling by the Sundsvall court will be appealed to the Supreme Administrative Court of justice. If it is upheld and considering that foreign investment- and pension funds are extremely big investors on the Swedish stock exchange and that dividend distributions from Swedish corporations have been very large in the last couple of years, the combined tax refunds comprising the five past years will be quite enormous. We are talking of billions of Swedish crowns.

Stockholm 12 March 2012

peter@sundgren.net