A new Swedish ruling opens refund opportunities for asset managers of international (regulated) investment funds as limited commodity exposure no longer blocks withholding tax relief. Many funds may now qualify, and Svalner Atlas Sweden can support your claims.
In a recent case from the Swedish Administrative Court of Appeal of Sundsvall, a Canadian mutual fund was deemed equivalent to a Swedish special fund and therefore exempt from Swedish withholding tax. This despite investments in commodities, an asset class which Swedish special funds are generally prohibited from investing in.
According to the Swedish Withholding Tax Act, dividends paid from Swedish limited companies to foreign legal persons are normally taxed at 30% (assuming the dividends are not attributable to income of business conducted through a Swedish permanent establishment). It is the legal person who is “entitled to” the dividend distribution that is tax liable.
Since 2012, Swedish mutual funds, Swedish special funds and foreign equivalents to such funds are exempted from Swedish withholding tax. Foreign UCITS funds are presumed to be equivalent to Swedish mutual funds, while funds established outside of the EEA and foreign special investment funds must be assessed against Swedish special funds criteria, including e.g. authorization and supervision, depositary requirements, capital raising, redemption rules and permitted asset classes.
In 2022, a Canadian mutual fund (with around 40 sub-funds) which had suffered Swedish withholding tax of over 12 million SEK on dividends received by its sub-funds applied for a refund of said tax, arguing that the main fund (or its sub-funds) should be considered equivalent to Swedish special funds. The Swedish Tax Agency refused the application by stating that because 3 of the sub-funds were allowed to invest in commodities (only one sub-fund had used this right), the main fund (the fund confirmed relevant for the assessment) could not be considered equivalent to a Swedish special fund. In accordance with the tax treaty between Sweden and Canada, the Agency however refunded half of the withheld tax (15%). The fund appealed the Agency’s decision to the administrative court of Falun which ruled in favor of the Agency. The fund then appealed that judgement to the Administrative Court of Appeal of Sundsvall.
The Administrative Court of Appeal stated that a foreign fund does not have to be identical to a Swedish special fund to be considered equivalent to such a fund. Further, the court noted that a Swedish special fund is theoretically also able to invest in commodities, although such an investment would require approval from the Swedish Financial Supervisory Authority. The court stated that the fund’s chances of investing in precious metals as well as its actual investments in such assets were limited in an overall assessment and should not prevent the main fund from being considered equivalent to a Swedish special fund, when it corresponded to such a fund in other relevant aspects. Thus, the court ruled that the main fund should be considered equivalent to a Swedish special fund and exempted from taxation on the dividends received by its sub-funds. The ruling was never appealed.
While the ruling of a Court of Appeal does not constitute a precedent, this case indicates that foreign non-UCITS funds must not fully mirror Swedish special funds to be exempted from Swedish withholding tax. Consequently, non-Swedish non-UCITS funds that have suffered such tax may want to assess the possibilities of a refund. Svalner Atlas offers the expertise to navigate that process efficiently.
