Interest on withholding tax levied in conflict with EU law

The Supreme Administrative Court has determined that interest is to be charged on repaid withholding tax when the levied tax is in conflict with EU law. This interest is to be calculated already from the day after the date on which the tax was incorrectly withheld, up to and including the date on which it is repaid.

A foreign fund previously requested and received repayment of withholding tax on the basis that the levying of this tax was in conflict with EU law. The fund subsequently requested that interest should also apply on the withholding tax. The fund was partially granted their claim in the Administrative Court of Appeal, which determined that interest would apply from the date on which the application for repayment was filed with the Tax Agency, something that we wrote about in previous Tax matters. The Supreme Administrative Court (SAC) is, now, partially changing the Administrative Court of Appeal’s previous decision.

The question in the case addressed the principles applying to the right to and calculation of interest on withholding tax levied in conflict with EU law. SAC deemed, initially, that EU case law stipulates that member states are liable to pay interest on taxes levied in conflict with EU law. In addition, SAC found that the EU law principle, the so-called principle of effectiveness, implies that the amount of interest is to be equivalent to the loss arising due to the incorrect levied withholding tax. Consequently, the interest is to be paid from and beginning the date after the date on which the tax was withheld, up to and including the date on which it is repaid, that is, during the period during which the recipient of the dividends could not make use of the entire dividend amount. SAC was of the opinion that the fact that the tax was paid to the Tax Agency at a point in time after it had been withheld, was of no significance.

SAC also clarified their view that the interest should be calculated according to the regulations in the Swedish Tax Procedures Act (2011:1244), respective the Swedish Tax Payment Act (1997:483), based on the implications of the transition rules, in spite of the fact that the Swedish Withholding Tax Act is not expressly included in the scope of those laws.

Comments

SAC has now confirmed EU case law whereby it is deemed that there is a directly based on EU law right to interest on tax levied in conflict with EU law, and that the interest is to be calculated already from the date after the date on which the tax was incorrectly withheld. In this context, it should be noted that SAC’s statements in this case implies that the trial has been made only as regards the premise that the levied coupon tax is in conflict with EU law.

You are most welcome to contact us for more information regarding the possibilities of foreign funds applying for repayment of withholding tax and as regards the right to interest on incorrectly levied withholding tax.

Daniel Glückman and Alexander Sjöwall