The Court of Justice of the European Union published a groundbreaking ruling at the end of July 2024. The ruling means that foreign pension funds are no longer liable for Swedish withholding tax on dividends from Swedish companies.
What is Swedish Withholding Tax?
Swedish withholding tax ("Kupongskatt") is levied on dividends from Swedish companies. As a general rule, the Swedish withholding tax rate is 30%, but in many cases, it is reduced by applicable tax treaties—often to 15%. The withholding tax is withheld directly from the dividend payment, so no declaration or tax return is required. If too much withholding tax has been deducted, there is an option to apply for a refund.
Do Swedish State Pension Funds Pay Withholding Tax?
There are several exemptions to Swedish withholding tax, one of which is that no withholding tax is levied on dividends from Swedish companies to Swedish state pension funds. These funds are completely exempt from income tax. There is no similar exception, in the Swedish legislation, applying to pension funds of other states.
What Does the Verdict from the EU Court Mean?
EU law stipulates that foreign state pension funds cannot be discriminated against, including in tax matters, compared to Swedish state pension funds. The court case concerned three Finnish state pension funds, one of which, named Keva, had received dividend income from Swedish companies. Since Swedish state pension funds do not have to pay any tax on dividends from Swedish companies, the Finnish pension funds argued that they should not be required to pay Swedish withholding tax either.
They therefore applied for a refund of the Swedish withholding tax that had been paid. After the case made its way up to the Supreme Administrative Court, a preliminary ruling was obtained from the EU Court.
The EU Court found that the Finnish state pension funds were comparable to Swedish state pension funds. Therefore, the EU Court concluded that the imposition of withholding tax on the Finnish state pension funds violated the EU’s principle of free movement of capital. This implies that Sweden is obligated to reimburse the withholding tax.
How Can State Pension Funds Obtain a Refund of Incorrectly Withheld Tax?
Now that it has been clarified that foreign state pension funds are also not required to pay Swedish withholding tax, a refund can now be requested for incorrectly withheld tax. As a general rule, in 2024, it is possible to apply for a refund of withholding tax charged from 2019 onwards.
Contact us if you need assistance with reclaiming Swedish withholding tax.
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