A proposal for a new act on withholding tax on dividends
A legislative proposal on withholding tax on dividends has been referred for consultation by the Ministry of Finance on 29 April 2020.
The proposal for a new act on withholding tax on dividends means that the current Withholding Tax Act (Sw. Kupongskattelag) will be replaced. The purpose of the proposed act is to increase the efficiency and modernize the rules on withholding tax on dividends. The proposal involves relatively significant changes compared to the current legislation, where the main points can be summarised as follows:
• According to the bill, withholding tax will be levied on dividends to persons who are not subject to unlimited tax liability in Sweden and are entitled to the dividends at the point of distribution. The assessment of the eligibility of the dividends at the point of distribution shall be based on an interpretation of the term “beneficial owner” under the OECD model agreement, which may be different from who is entitled to the dividends under the current Withholding Tax Act. According to the bill, withholding tax on dividends will continue to be levied at 30 percent as a main rule.
• As under the current the current Withholding Tax Act several exemptions from withholding tax on dividends are proposed. Compared to the current legislation the bill contains certain limitations and certain additional exemptions.
• Direct reduction of withholding tax under tax treaties will continue to be possible where applicable, under certain conditions.
• According to the bill a requirement to provide information about dividend on an individual basis in a specific tax return will be imposed. This specific tax return should be submitted within two months of the point of distribution, and the tax return should be submitted by the person who should make the tax deduction.
• The obligation to withhold, report any pay withholding tax shall, as a starting point, be made by the company paying the dividends. However, the Ministry of Finance proposes that a specific structure will be set up for operators referred to as approved intermediary (which refers to CSDs and registered managers). The approved intermediary will then take over the responsibility to withhold, report, and pay withholding tax on dividends.
• It is also proposed that the current anti avoidance rule in the Withholding Tax Act (Sw. bulvanregeln) is abolished and that withholding tax on dividends is subject to the Swedish Tax Avoidance Act. To ensure Sweden’s right to levy withholding tax, it is also proposed that a specific tax liability shall apply in certain situations, giving Sweden the right to tax the person receiving the dividend (e.g. a person who is subject to unlimited tax liability in Sweden) rather than the person who is entitled to the dividend.
• Special rules on non-monetary dividends are proposed where the person who will make the tax deduction is able to pay dividends to a special account.
• Procedural rules on withholding tax are proposed to be regulated under the current law on tax procedure to adapt to the current structure for other taxes.
The new act on withholding tax on dividends is proposed to enter into force on 1 January 2022 as regards the rules on approved intermediaries, and otherwise on dividends distributed as from 1 July 2022.
Comments by Svalner
The bill entails significant changes of the rules on withholding tax on dividends. It can especially noted that according to a cautious estimate, the proposal is expected to permanently increase the tax revenues by SEK 870m annually.
We expect that several consultation bodies will have comments on the bill, e.g. regarding the scope of the proposed exemptions from withholding tax (especially to the extent that these entails a restriction compared to the current rules), the application of the Tax Avoidance Act on withholding taxes and the specific tax liability that are proposed to apply in specific cases to prevent tax avoidance. It may also be noted that the proposal to abolish the current anti avoidance rule in the Withholding Tax Act in order to instead apply the Tax Avoidance Act has been proposed in previous legislative work. However, the proposal was withdrawn following widespread criticism.
We will analyse the proposal in more detail and of course continue to closely monitor the further development. The consultation response on the bill shall be received by the Ministry of Finance no later than 14 August 2020.
If you have any further questions regarding the bill, or if you want us to review the impact on your specific tax liability on withholding tax, please contact: