Sweden: “Hybrid rule” implications for dividend income | KPMG | GLOBAL

Sweden: “Hybrid rule” implications for dividend income, withholding tax

Sweden: “Hybrid rule” implications for dividend income

Changes to the tax law in Sweden reflect additions of anti-avoidance provisions to the EU Parent/Subsidiary Directive and are intended to bring Swedish tax law into compliance with the directive. The new anti-avoidance provisions will be effective 1 January 2016—which is also the timeframe for EU implementation of the directive’s hybrid rule.


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Tax changes in Sweden

  • In line with the new “hybrid rule” under the directive, the Swedish tax exemption for dividends under the participation exemption law is amended so that dividends received will not be tax-exempt to the extent the distributing subsidiary has been allowed to deduct the distributed dividend as interest or similar cost. 
  • The existing anti-avoidance provision in the Sweden’s withholding tax law (referred to as the “conduit rule”) explicitly is given priority over exemptions from withholding tax—with a practical effect that the Swedish tax authorities can be expected to increase their focus on structures set up to avoid withholding tax on dividends by using intermediate companies. 
  • There is no amendment from the directive’s anti-avoidance rule with respect to the taxation of dividend income. Instead, situations intended to be covered by the directive would be “caught” by the existing Swedish tax avoidance law.
  • To allow for “legal certainty,” a provision allows taxpayers to request advance rulings with regards to withholding tax (within four months of the dividend payment).

KPMG observation

Given these new provisions, it has become increasingly important for taxpayers in Sweden to consider the foreign tax treatment of dividends received from subsidiary companies located in other countries. Moreover, Swedish companies will be required to withhold tax on dividends in a broader range of circumstances than under the current rules—in particular, with respect to structures that have been set up in order to achieve an exemption from or reduction of withholding tax. 


Read a December 2015 report prepared by the KPMG member firm in Sweden: Swedish parliament approves new anti-avoidance measures on tax exempt dividend income and withholding tax

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