A US investment fund (US RIC) claimed a refund of Swedish withholding taxes levied in 2006–2008 on Swedish portfolio shareholding dividends. While Swedish resident investment funds were tax-exempt, foreign funds carried a tax liability for gross dividends received. US RIC argued that this difference in tax treatment was discriminatory and contrary to Article 63 of the Treaty of the Functioning of the European Union (TFEU) on the free movement of capital.
The SAC specifically addressed the comparability analysis based on the purpose and wording of the applicable national rules. It ruled that the legal form of an entity would only be important if it is relevant to the purpose and wording of the rules in question. However, the fact that an investment fund is a legal entity whereas a Swedish investment fund is not, does not preclude them from being comparable in the context of dividend taxation.
This should also pertain to the rules that apply today.
Based on the decision of the SAC, the comparability analysis must go beyond assessing an entity’s legal form. Therefore, foreign investment funds may be seen as akin to Swedish resident investment funds under Swedish law regarding withholding tax on dividends, despite their legal form. They may also ultimately benefit from the applicable exemption regime under Swedish national law.
The Swedish Administrative Court of Appeal (ACA) will now decide whether or not to grant a refund to US RIC. The ACA will reassess the comparability analysis. It is predicted that the ACA will refer to previous case law granting repayments to several types of investment funds.
Therefore, this ruling from the SAC should positively impact the reclaim opportunities for foreign non-UCITS investment funds and legal entities, e.g. Luxembourg non-UCITS SICAVs, assuming they still meet the other requirements of the Swedish Withholding Tax Act that puts them on a par with Swedish investment funds.
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