On April 29, 2020, the Swedish Ministry of Finance referred a proposal for consultation regarding a new law on withholding tax on dividends. In summary, the proposal essentially suggested the following changes compared to the current legislation:
- The current Withholding Tax Act (1970:624) is to be replaced by a new law. The new tax is to be called withholding tax on dividends (i.e. not coupon tax). Liable to withholding tax is a non-Swedish tax resident (i.e. a person not unlimitedly liable to tax in Sweden) who is entitled to the dividend at the time of the dividend payment (i.e. tax liability is no longer limited to investors qualifying as legal persons).
- Like today, the tax rate will be, as a starting point, 30 percent on the dividend. The taxpayer is still entitled to a direct reduction (so-called relief at source) by reference to Double Tax Treaties directly at the time of distribution under certain conditions. However, a requirement is introduced to provide information at the level of the individual in a tax return in order to be able to receive such a reduced tax rate directly at the time of distribution. This is introduced in order to reduce tax avoidance and errors.
- Withholding tax on dividends would be subject to the provisions of the Tax Avoidance Act (1995:575). The Government’s assessment is that the General Anti Avoidance Provision in the EU Parent-Subsidiary directive would be better implemented in Swedish law through this reference to the Tax Avoidance Act, rather than the existing separate conduit rule in the Withholding Tax Act.
- In order to counteract tax avoidance, the withholding tax would in some cases be levied even when the person entitled to the dividend is not the same as the person receiving the dividend. In those cases, the person who received the dividend should be considered as the taxable person. In this way, it will be more difficult to circumvent the rules through securities ledning, also known as cum-cum arrangements.
- The rules around the procedure of levying and claiming withholding tax should follow the system and structure used in the Tax Procedures Act (2011:1244).
- An “Approved Intermediary” should be able to take over the responsibility for containing, reporting and paying withholding tax on dividends.
The proposal also specifies the following exceptions, to a large extent introduced to ensure that Swedish withholding tax is in line with EU law:
- A foreign state or foreign equivalent to a Swedish region, municipality or municipal association is not considered liable to withholding tax.
- If the person entitled to the dividend is a foreign equivalent to a Swedish foundation or other legal person who is not liable to tax, the dividend is exempt from withholding tax.
- A foreign legal person who is liable to withholding tax may deduct from the dividend costs directly related to this dividend.
- Deferral is granted for the payment of withholding tax on dividends when the recipient is a foreign legal person with tax losses (in accordance with the rules previously introduced as a result of case law of the European Court of Justice).
The proposal is estimated to increase government revenue by SEK 870 million per year.
It is proposed that the new withholding tax act on dividends enters into force on January 1, 2022 in respect of the provisions on approved intermediaries, and otherwise on July 1, 2022. The law applies to dividends where the dividend occurs after June 30, 2022.
The consultation responses must have been received by the Ministry of Finance no later than August 14, 2020.
With this proposal for a new law on withholding tax on dividends, the Ministry of Finance hopes to achieve an efficient and modern regulatory framework. This is welcomed by KPMG, which has historically highlighted the difficulties in the application of the current Withholding Tax Act. It is also positive that a number of exceptions from withholding tax, which already apply under EU law, are now set out in the wording of the law. KPMG will continue to monitor the developments and review the proposal in detail.
The article in Swedish
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