New Swedish Rules On Postponement Of Withholding Tax Payments

On October 17, 2019, the Swedish government published an official report proposing a new regulation on postponement of payments of withholding tax charged on dividend distributions to loss-making foreign (i.e. non-Swedish) entities. The proposal has been enacted and the new legislation entered into force on January 1, 2020.

Basis for the Swedish legislation - CJEU Case C-575/17 Sofina SA and Others

The new legislation is based on the Court of Justice of the European Union (CJEU) judgment in case C-575/17 Sofina SA and Others. The case concerned the compatibility with EU law of the French withholding tax levied on dividends paid by French companies to non-resident, loss-making companies. The case involved Sofina SA, Rebelco SA and Sidro SA, which were three Belgian companies that received French-sourced dividend distributions. The distributions were subject to a 15% withholding tax in accordance with the tax treaty between France and Belgium. The three Belgian companies were loss-making and the withholding tax charged resulted in a non-recoverable expense for the Belgian companies. In contrast, loss-making French companies are only taxed on the amount of the dividend distributions they receive once the companies become profitable again. The Belgian companies claimed that the less favorable tax treatment infringed EU law and requested a refund of the tax charged. The CJEU noted that the French legislation treats the dividends distributed to a non-resident, loss-making company less favorably compared to loss-making French companies, thus creating a cash flow disadvantage for non-resident, loss-making companies. Referring to its previous case law, the CJEU concluded that the difference in tax treatment constituted a restriction on the free movement of capital and an unjustified breach of EU law.

Swedish withholding tax legislation prior to 2020

Sweden had a withholding tax system for companies that was similar to the French rules. Swedish companies could, and still can, offset the dividend received against costs incurred during the year and against deficits from previous years, which means that the effective taxation of the dividend is postponed until the company makes a profit. There is no comparable provision in Swedish legislation that grants a postponement of the withholding tax charged on dividends paid to companies resident in another state. As such, loss-making, non-resident companies would have a cash flow disadvantage compared to...