The Supreme Administrative Court (HFD) has decided to request a preliminary ruling from the Court of Justice of the European Union (CJEU) on the question of whether it is compatible with the free movement of capital under the TFEU to levy withholding tax on dividends to foreign public pension institutions.
The underlaying reason is that Swedish public pension funds (so called AP funds) are exempt from taxation, while foreign public pension institutions are in principle taxable (up to 30%) on dividends received from Swedish limited liability companies and Swedish UCITS/special funds.
The European Commission has previously issued a letter of formal notice and subsequently a reasoned opinion, in which the European Commission expressed the view that the Swedish taxation of foreign public pension institutions is contrary to the free movement of capital. Skeppsbron Skatt has previously commented on the European Commission’s letter of formal notice.
The Supreme Administrative Court has granted leave to appeal in several cases concerning Finnish public pension institutions and has now decided to request a preliminary ruling from the Court of Justice of the European Union in these cases. The Supreme Administrative Court has asked three questions to the Court of Justice of the European Union:
- Does the fact that dividends paid by domestic companies to foreign public pension institutions are subject to withholding tax, whereas corresponding dividends are not subject to tax if they accrue to the domestic state through its general pension funds, constitute an adverse difference in treatment which restricts the free movement of capital that in principle is prohibited under Article 63 TFEU?
- If the answer to question one is in the affirmative, what criteria must be taken into account when determining whether a foreign public pension institution is in a situation that is objectively comparable to that of the state and its general pension funds?
- Could a potential restriction be justified by overriding reasons in the public interest?
In light of the Commission’s letter of formal notice and reasoned opinion, it is very positive that the Supreme Administrative Court is now requesting a preliminary ruling from the Court of Justice of the European Union.
In all the cases in which leave to appeal have been granted, the Court of Appeal has assessed that the Swedish legislation does indeed entail a difference in treatment, but that the Finnish public pension institutions are not in an objectively comparable situation to that of the Swedish AP funds. This conclusion has been drawn with respect to the purpose, object and contents of the Swedish legislation on tax exemptions for state bodies. Therefore, we believe that the Court of Justice of the European Union’s answer to the second question is of particular interest (provided that the Court of Justice of the European Union shares the Court of Appeal’s assessment that a difference in treatment exists) for the cases at hand, as well as for the other cases concerning refunds of withholding tax on dividends to foreign public pension institutions.
Skeppsbron Skatt closely follows further developments. Please contact us if you have any questions or considerations.