The present E-Alert intends to summarize the situation of withholding tax (“WHT”) reclaims in Sweden.
Swedish courts have confirmed that many types of investment funds should be eligible for a full refund of Swedish WHT suffered. Many funds have accordingly received WHT repayments. In addition, the law changed as from 1 January 2012 to allow an exemption for certain qualifying funds.
For any investment funds that have not filed refunds claims to date, it is time to do so now in order not to lose WHT suffered going back to 1 January 2009.
Swedish courts have confirmed that the Swedish rules, which levy WHT on dividends to foreign investment funds are contrary to EU law. There are final positive decisions concerning UCITS funds of corporate type such as UK OEICs/ICVCs, Luxembourg SICAVs, Finnish investment companies, Norwegian investment funds and Irish Unit Trusts, which confirm that these funds are entitled to full repayment of Swedish WHT by reference to EU law.
In respect of claims filed for funds outside the EU/EEA (third country claims), there are some positive lower court decisions for US RICs, by reference to EU law, which have been appealed by the Swedish Tax Authorities (“STA”) and await decisions by the Administrative Court of Appeal.
Thus, refund applications for years going back to 1 January 2009 can be filed by reference to EU law. Applications concerning WHT paid from 2012 and forward may as an alternative be made by reference to a new exemption in the WHT Act in force from 1 January 2012. The exemption applies to foreign funds equivalent to Swedish investment funds, provided the foreign fund is domiciled within the EU/EEA or in a country with which Sweden has concluded a treaty with an exchange of information clause. The STA has issued a statement with the criteria which in the STA’s view are required to benefit from the exemption.
The exemption applies to UCITS funds. Other funds should be required to produce sufficient evidence that they are equivalent to Swedish investment funds.
Swedish courts have confirmed that certain contractual funds which are not legal entities are entitled to a refund of Swedish WHT by reference to Swedish domestic law. A decision from the Administrative Court of Appeal in 2012 (which is now final), concerning a Luxembourg FCP investment fund, concluded that the FCP was not liable to Swedish WHT. To be liable to WHT under the Swedish WHT Act, the foreign entity/fund should be both (i) the beneficial owner of the dividends received and (ii) a so called “foreign legal entity” within the meaning of the legislation. Since the FCP was contractual and not a legal entity, but still held to be the beneficial owner of the dividends it received, it was not liable to Swedish WHT and was granted a full WHT repayment.
Following this and other similar judgments, the STA has started to issue repayments to different types of contractual funds, including e.g. FCPs and German contractual investment funds. In April 2014 the STA also issued a statement, with reference to this case law, in which the STA is of the view that contractual funds are entitled to repayment of tax withheld under the prerequisite that the funds are legally regulated in approximately the same way as Swedish investment funds. With regards to investor’s clubs, joint ownerships, partnerships, limited partnerships and similar funds that for tax purposes are treated as see through, the STA does not consider these as being such contractual funds that are not liable to WHT. For the latter, the STA thinks the liability should be tested at investor level.
To have the best chance of success, claims for contractual funds with beneficial owner status can be filed on the basis of: (i) domestic law (not a foreign legal entity); (ii) EU law; and in some cases (iii) in respect of dividends received from 1 January 2012 (if applicable), by reference to the new legislation.
In general, with regards to EU law and the new legislation, non – UCITS funds should show sufficient evidence that they are equivalent to Swedish investment funds to have a chance to obtain repayments.
It is important to get the claims right so that deadlines are not missed and claims are filed at the correct level and in the correct manner formally and on a basis appropriate for the fund in question.
KPMG has been driving the development in this area and has been leading a large proportion of the successful cases in the courts, with a proven track record of obtaining full refunds for our clients.
We have significant experience in filing these claims and know what it takes to maximize the chance of success in each case.
For any investment funds that have not filed refund claims to date it is time to do so now (before the end of 2014) in order not to lose WHT suffered going back to 1 January 2009.
Finally, KPMG can help foreign investment funds to apply for a WHT exemption on future payments.
For further information, please do not hesitate to contact us.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.