The Swedish Board for Advance Tax Rulings (the Board) has, in a ruling issued in March 2017, found that withholding tax should not be levied in a situation where dividends from a Swedish company are distributed to a company in another European Union (EU) Member State, Malta, which would invest some of the received dividends and subsequently (but not during the year of the receipt) distribute the dividends to the owner of the Maltese company. The Board found that the anti-avoidance provision in the Swedish Coupon Tax Act should not be applicable. The ruling has been appealed to the Swedish Supreme Administrative Court.
According to the EU Parent Subsidiary Directive (Directive 2011/96/EU) (the PSD), dividend distributions from a subsidiary in one EU Member State, to a parent company in another Member State, shall be exempt from tax. The PSD was amended in 2015 to include a common minimum anti-abuse rule. According to the anti-abuse rule, the member states shall not grant the benefits of the PSD to an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the objective or purpose of the PSD, are not genuine considering all relevant facts and circumstances.
The Swedish Coupon Tax Act already contained an anti-avoidance provision which states that there should be a tax liability where a person or entity receives dividends, if the holding of the shares is intended to provide an illegitimate tax advantage for someone else.
The amendment of the PSD led to an amendment of the Swedish Coupon Tax Act which, without changing the wording of the existing anti-avoidance provision, was intended to clarify that the provision in question should serve as an implementation of the anti-abuse rule of the PSD.
The advance tax ruling
A Swedish national who was tax resident in Portugal, owned two Swedish companies. Dividend distributions from the Swedish companies directly to the Swedish national would be subject to 10% withholding tax by virtue of the tax treaty between Sweden and Portugal. The Swedish national set up a holding company in Malta, and transferred his Swedish shares (tax free) to the new Maltese entity. The Maltese entity will receive dividends from its two Swedish subsidiaries and it will make dividend distributions to its shareholder, the Swedish national, but never in the same fiscal year as it receives the dividends from its subsidiaries. The Maltese entity will also invest some of the received dividends in other securities, based on a discretionary investment agreement with a bank.
The Maltese company applied for an advance tax ruling asking whether the dividends distributed from its Swedish subsidiaries should be subject to Swedish withholding tax. The Maltese entity was of the opinion that the dividends should be exempt from withholding tax, but uncertain of whether the anti-avoidance provision in the Swedish Coupon Tax Act would be applicable or not following the amendment.
The ruling states that the Swedish Tax Agency’s view is that the anti-avoidance provision should be applicable.
The Board noted that the Maltese company’s holding of the Swedish subsidiaries seems to be long term and that proceeds from the distributions from them will be managed and invested by the Maltese company. Furthermore, the Maltese entity is a company within the EU and the structure deviates from what is normally viewed as a typical tax avoidance structure. Therefore, the Board concluded that the dividend distributions from Z and Y to X should not be subject to withholding tax.
The minority (two) of the members of the Board (eight) stated that there was insufficient information about the activities of the Maltese company and that no ruling should have been issued.
The Tax Agency has appealed the ruling to the Supreme Administrative Court (SAC) and it is expected that it will take a further 12 months or so before a final decision is issued and further clarity received from the SAC.
EYG no. 03163-171Gbl