Sweden: Proposed withholding tax on dividends
Sweden: Proposed withholding tax on dividends
The Swedish Ministry of Finance in late April 2020 announced a consultation for a proposed withholding tax on dividends.
The proposal would amend existing legislation to make the following changes.
- The current withholding tax law (1970:624) would be replaced, and the new tax would be referred to as a withholding tax on dividends (not a coupon tax). A non-Swedish tax resident (a person that is not generally subject to tax in Sweden) if entitled to a dividend at the time of the dividend’s payment would be liable for the new withholding tax. Tax liability would no longer be limited to investors qualifying as legal persons.
- Similar to current rules, the withholding tax rate on dividends would be 30% of the dividend payment. The taxpayer would still be entitled to a ”direct reduction” (relief at source) if applicable income tax treaty provisions applied at the time of the dividend distribution under certain conditions. However, there would be a new requirement—information at the individual level would need to be provided in a tax return in order to directly benefit from such a reduced tax rate at the time of dividend’s distribution.
- Withholding tax on dividends would be subject to provisions of the Swedish tax avoidance law (1995:575). The government’s position is that the general anti-avoidance provision of the EU Parent-Subsidiary directive would be more effectively implemented in Swedish law by reference to the tax avoidance law, rather than through the existing separate conduit rule.
- In order to address tax avoidance, in certain situations, the withholding tax would be imposed even when a person entitled to receive the dividend is not the same as the person actually receiving the dividend. In these instances, the person receiving the dividend would be considered to be the taxable person. This treatment would make it more difficult to circumvent the rules through certain securities lending transactions or arrangements.
- The rules for levying the withholding tax would be subejct to the structure used in the tax procedures law (2011:1244).
- An “approved intermediary” would be allowed to be responsible for reporting and paying withholding tax on dividends.
The proposal also specifies the following exceptions so that the Swedish withholding tax would be in line with EU law:
- A foreign state or the foreign equivalent to a Swedish region, municipality or municipal association would not be liable to the withholding tax.
- If the person entitled to the dividend is a foreign equivalent to a Swedish foundation or other legal person not liable to tax, the dividend would be exempt from withholding tax.
- A foreign legal person that is liable to withholding tax could deduct from the dividend certain costs directly related to the dividend.
- Deferral from payment of the withholding tax on dividends would be allowed when the recipient is a foreign legal person with tax losses (generally following the standard provided in case law of the Court of Justice of the European Union).
The new withholding tax act on dividends is proposed to be effective for dividends paid after 30 June 2022.
Consultation responses must be received by the Ministry of Finance no later than 14 August 2020.
Read a May 2020 report prepared by the KPMG member firm in Sweden
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