There is no Swedish tax legislation which specifically regulates the taxation of crypto assets, and the regulation of trade with such assets is somewhat limited. Crypto assets are taxed under the general rules in the Swedish Income Tax Act, which has implicated some questions of the classification of crypto assets for tax purposes.
The tax treatment of the specific crypto asset Bitcoin was assessed by the Swedish Supreme Administrative Court (SAC) in 2018 (SAC 2018 ref. 72). The court stated that from a tax perspective Bitcoin could not be compared with a foreign currency since Bitcoin was not issued by a national bank and was not an approved means of payment. Bitcoin was assessed as an “other asset”, to be taxed under the general rules on capital gains. As a result of this case, the general rule is that Bitcoin (and other type of crypto assets) is taxed as capital assets. Capital gains shall be calculated for each sale or transfer. The sales price is reduced by the purchase price and eventual other costs relating to the sale of the asset. The capital gain / loss is taxable or deductible as income of business, if held in a business, and as income of capital, if held as an individual. Applicable tax rates are 20.6% (income of business) or 30% (income of capital, if held by individual).
Swedish WHT on dividends
New Swedish WHT Act
Under the Swedish withholding tax act (WHT act), limited tax liable (cf. non-tax resident) individuals and foreign legal entities are subject to WHT of 30% on dividends from Swedish companies.
The implementation of a new Swedish WHT Act has been discussed in previous years, and in late April 2020, the Swedish Ministry of Finance referred a proposal (Ds. 2020:10) for consultation regarding a new law on WHT on dividends. It is proposed that the current WHT Act is to be replaced by a new law, under which liability to WHT applies to non-Swedish tax residents who are entitled to dividend at the time of the dividend payment (i.e. tax liability is no longer limited to investors qualifying as legal persons). According to the proposal, there will be no changes regarding applicable tax rates.
Exemption from WHT applies to dividends distributed to a foreign contractual fund. In addition, exemption from WHT tax applies to funds within (i) the E.E.A. or (ii) a country with which Sweden has a comprehensive income tax treaty, or a tax information exchange agreement.
Recent court cases
Funds that are taxed at the co-owning level must be comparable to a Swedish special fund (non-UCITS) to be exempted from WHT. The Swedish Tax Agency applies certain criteria to decide whether a foreign fund is comparable. In 2020, the SAC ruled in a case concerning the refund of WHT paid by a trust fund. The case concerned an Irish trust fund, organized as a unit trust – constituted by a trust deed between the trustee and the manager of the fund. The court concluded that the only difference between a Swedish special fund and the unit trust fund was that the trustee was the formal owner of the fund’s assets, which should not result in different treatment compared to a contractual fund. The Irish trust was granted full repayment of Swedish WHT.
In another SAC ruling (SAC case no. 3725-3727-18), it was confirmed that a foreign investment fund can be regarded as comparable to a Swedish investment fund regardless of legal form, if all other requirements are fulfilled. The case concerned a US investment fund. The fund invested in different securities on its shareholders’ behalf. During 2006-2008, the fund received dividends from Swedish companies which were subject to WHT. For the years in question, Swedish investment funds were tax exempt, being entitled to a tax deduction for dividends paid, whilst overseas investment funds were subject to Swedish WHT on gross dividends received. The US fund argued that the different treatment was contrary to the free movement of capital in article 63 of the Treaty of the Function of the European Union (“TFEU”). SAC agreed with the fund and stated that the present case should be assessed by reference to EU law and CJEU case law. As described above, this ruling could also have positive impact on reclaim possibilities for other types of foreign investment funds that are non-UCITS and legal entities.
Controlled Foreign Companies (CFC)
Sweden’s CFC provisions aim at taxing a Swedish resident shareholder for shareholdings in low-taxed foreign entities. A Swedish resident shareholder with a holding in a CFC entity is taxed annually for its ownership portion of the CFC’s income, according to provisions applicable to a Swedish corporation. In order to be subject to CFC tax in Sweden, the Swedish resident shareholder has to, directly or indirectly, control at least 25% of the capital or the votes in the foreign company. Also, the applicable tax rate on the net income (calculated according to Swedish rules) in the applicable CFC country must be below 55% of the Swedish CIT of 20.6%, i.e. 11.33%. Shareholders that can prove that the foreign company has a genuine establishment and that the company derives business on commercial grounds, will not be CFC taxed.
In a ruling from the SAC (case no. 6446-19) the court stated that an AIF may be assessed to have a genuine establishment and thus, the shareholders may be exempted from taxation under the CFC regime. The case concerned two natural persons who were shareholders in a Luxembourg fund company of the type SA, SICAV-SIF. Together with a fund manager (a Luxembourg SA) and a custodian (a Luxembourg SA) the SA, SICAV-SIF had set up an AIF. In Luxembourg, the SA, SICAV-SIF was exempted from tax on its profits. Instead, it was subject to an annual tax of 0.01 % of the value of the Fund Company’s net assets (taxe d’abonnement). The SA, SICAV-SIF was deemed as low taxed, so the CFC rules were in principle applicable. But the SAC held that the business carried out by the SA, SICAV-SIF were of such type that it constituted a genuine establishment.
The assessment of whether a company constitutes a genuine establishment must be assessed based on the type of activities in the individual case. In the mentioned ruling, the AIF was considered having sufficient resources and competence for its task. With regard to the operations conducted in the AIF, it was considered irrelevant that the AIF did not have its own staff and that it was the external manager who made the decisions in the day-to-day operations. Against this background, the SAC found that the AIF constituted a genuine establishment from which a commercially motivated business was conducted and no CFC taxation was imposed.
If you wish to discuss these topics, please contact: Svalner Skatt & Transaktion, Stockholm
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