Swedish law provides that on distribution of Swedish source dividends, only a “beneficial owner” that is also a foreign “legal entity” (i.e., having a legal capacity) is subject to Swedish withholding tax at the domestic rate of 30%.
The Swedish Administrative Court of Appeal issued a decision in late 2011 that a Luxembourg FCP was not subject to Swedish withholding tax on outbound dividends (i.e., distributed by Swedish corporations) because the Luxembourg FCP was not a foreign “legal entity” within the meaning of Swedish law. The court, thus, held that the Luxembourg FCP was entitled to a refund of the Swedish withholding tax.
The Swedish tax authorities sought to appeal the decision, but the Administrative Court of Appeal refused to grant leave for an appeal and the decision of the Court of Appeal has therefore become final.
Protective refund claims
In the view of tax professionals in Luxembourg, by granting a full refund of withholding tax to the Luxembourg FCP, the Administrative Court of Appeal indirectly held that the FCP is the beneficial owner of the dividends. However, the question of beneficial ownership was not actually considered by the court. A few questions therefore remain concerning this issue (although Swedish lower courts have subsequently held, on the basis of the Court of Appeal's decision, that a Luxembourg FCP (and not the investors) is to be treated as the beneficial owner).
Tax professionals in Luxembourg are of the opinion that the case presents opportunities for FCPs and possibly other contractual investment funds to obtain refunds of Swedish withholding tax, and that prudent taxpayers would immediately file protective claims in order to safeguard refunds for the last five years.
Read a June 2012 report (PDF 52 KB) prepared by the KPMG member firm in Luxembourg: Positive developments in Sweden: Reimbursement of WHT for Luxembourg FCPs confirmed