The ECJ has delivered its decision in case C-265/04 Bouanich. The ruling is a legal precedent in all EU member states.

Mrs Bouanich, a French resident, held shares in a Swedish company. When the company repurchased shares from its shareholders Sweden withdrew a withholding tax of 30% on the amount paid to non-residents. In case of Mrs Bouanich the tax rate was reduced to 15% according to provisions in the Swedish-French tax treaty.

According to Swedish rules repurchase of shares constitutes a taxable event whereon the Swedish residents are taxed for capital gain after deduction for costs and expenses whereas the same amount paid out to non-residents is treated as dividends, with no right to costs deductions.

The question referred to the ECJ was whether this differential tax treatment of resident and non-resident shareholders, resulting partly from Swedish domestic law and partly from the application of the double tax treaty between France and Sweden, was compatible with the provisions of the EC Treaty.

The ECJ argued that the right to deduct the acquisition costs of shares constitutes a tax advantage, which is preserved solely to resident shareholders. In court’s view the effect of Swedish rules is that it is less attractive for investors to make cross-border transfers of capital such as buying shares in companies resident in Sweden. Consequently, the opportunities available to Swedish companies to raise capital from non-resident investors are restricted.

The ECJ found therefore that the differential treatment of non-resident and resident shareholders in the case of a repurchase of shares constitutes a restriction on the movement of capital within the meaning of Article 56 EC Treaty.

As to the possible grounds of justification, the ECJ found that, as the cost of acquisition of the shares is directly linked to the payments made in respect of their repurchase, there is no objective difference between the situations of resident and non-resident taxpayers when receiving such income. Consequently, the court found that the Swedish legislation was discriminatory to non-resident shareholders in as far as it imposed a higher tax burden compared to resident shareholders.

The ECJ examined also whether the tax treaty should be considered when examining the domestic legislation. The ECJ made the general statement that the tax treaty must be taken into account when interpreting Community Law since the tax treaty forms part of the legal background in the main proceedings. The court argued that the national legislation which derives from a tax treaty would only be compatible with the free movement of capital if the treatment of the non-resident shareholder as set out by the treaty is not less favourable than the treatment of a resident shareholder. The determination of whether the non-residents shareholders benefit from an equal treatment or suffer a disadvantage is the task of the national court. In so far the tax treaty does not result in an equal treatment it shall be set aside. Read full text.

Stockholm’s congestion charge trial began on 3 January and will continue until the end of July 2006. The test period will be followed of a public referendum in the mid of September to decide whether the Stockholmers want the road taxes to be permanent.

It is estimated that the trail will cost over 2 billion kronor, not to mention the charges that will affect motorists every day. All owners of vehicles registered in Sweden will have to pay a congestion charge if they drive into or out of the Stockholm city, every weekday between 6.30 am and 6.30 pm. In total 18 payment stations have been located at various entry points to the city centre. The daily charges vary from 10 to 20 kronor and the maximum charge per day is 60 kronor. The taxes must be paid within five days. Some types of vehicles will however be exempted from taxes, this will apply among others to buses, taxis and environmentally-friendly cars.

The aim of the trial is to reduce traffic, increase the accessibility on the busiest roads and reduce emissions of health-endangering pollutants and carbon dioxide.

The Swedish Minister of Finance, Pär Nuder, has expressed his view on the recent judgment from ECJ in case Marks & Spencer. Pär Nuder is of the opinion that the outcome of the case does not have any major effects on the Swedish rules on group contributions.

Although the Swedish system for group relief is, according to many scholars and tax consultants, very similar to the British rules challenged by the ECJ, the Swedish Minister of Finance is of the opinion that the findings made in the judgment cannot be directly applied to the Swedish conditions. Contrary to the British rules on deduction of losses, the Swedish system comprises contributions within the group, whereby the companies may chose which of them will be taxed for the contribution. Pär Nuder concludes however that the Swedish tax legislation may need to be changed to the extend it is possible to make tax deductions for losses in foreign subsidiaries against profits in the parent company, such changes would be in line with the statements made in Marks & Spencer case. The need for changes will be examined and a possible new proposal will be presented during the next year. Read the Swedish press release.

The Swedish Ministry of Finance has submitted a memorandum for environmental taxes on air travels. According to the proposal such taxes shall be paid for passengers flying from Swedish airports, with few exceptions, mainly by airplanes with weight higher than two tons.

The tax shall be levied with different rates depending on the class of the passenger’s trip and on whether the trip is made within or outside Europe. Suggested tax rates are:
SEK 96 per passenger with a lowest class within Europe and SEK 192 for a journey outside Europe,
SEK 192 for other classes within Europe, respectively SEK 430 for journeys outside Europe.

There are two categories of taxpayers 1) air companies and 2) owners or users of private plans. The tax liability occurs when the airplane takes of from a Swedish airport. It is suggested that the new legislation will enter into force on July 1, 2006.

Access the full text of the memorandum from the site of the Swedish Ministry of Finance.

The European Commission refers Sweden to the European Court of Justice for the reason that under Swedish law, capital gains from home sales can only benefit a tax relief if the sold home is located in Sweden and if the sales profits are reinvested in a replacement residence in Sweden. The commission believes this constitutes a discrimination of the EC Treaty rules, including the rules concerning the free movement of persons. Read more.

EU Commission has sent the Swedish government a reasoned opinion on the supreme courts practice of not referring the cases to the ECJ for a preliminary ruling. In its opinion, the Commission remarks that the Swedish law does not provide for rules on the procedure for deciding on referrals of cases to the ECJ.

The possibilities of having the case examined by the courts of final instance (Supreme Court and Supreme Administrative Court) are limited. Before the case is made admissible a leave to appeal is required. A leave to appeal is however granted in exceptional cases, one condition is that the case is of importance for application of law or that a grave procedural error occurred in the course of the proceedings at the court of lower instance. Decisions on the leave of appeal are given without stating the reasons. Hence it is impossible to check if the supreme courts have taken regard to their obligations to refer the case to the ECJ for a preliminary ruling. The Commission finds it therefore questionable whether this practice is in line with the courts obligations under Art 234 (3).

Sweden has special tax legislation for companies with up to four owners, close companies. The so called 3:12 rules are intended to prevent the owners of these companies taking out earned income in the form of income from capital in order to benefit from more favourable tax treatment. The rules mean that a standard stipulated portion of income is taxed as income from capital, and the remainder is taxed as earned income. The government has recently submitted a motion for changes in these rules. The reform will result in tax relieves of a total of SEK 1 billion. The new rules will enter into force on January 2006. Read more.

On 1 January 2006 the new Swedish Companies Act (2005) enters into force. The new legislation includes some essential novelties, one of them meaning that the nominal value for shares is eliminated and replaced with so called quota value. The companies will also be allowed to take up share of equity loans. The new legislation will bring necessary changes in Swedish Income Tax Act and Withholding Tax Act. The government has submitted a motion for changes which will apply as from 1 January 2006. The income tax and withholding tax regulations will be modified in order to correspond to the new terminology in the company act. Moreover, due to the elimination of nominal share value, the rules on exchange of shares will be modified with regard to limits in cash payments. The motion includes also provisions in relation to acquisition value for rights of redemption and sale rights. If such rights are obtained as a result of shareholding, the acquisition value will be settled to zero.
Read more about the proposed amendments (Swedish version).

The government has delivered a motion with proposals to tax amendments as a result of Directive 2003/41/EC on the Activities and Supervision of Institutions for Occupational Retirement Provisions, the so called Occupational Pensions Directive. The overall purpose with the amendments is that foreign pension institutes operating in Sweden shall enjoy same tax treatment as Swedish pension operators. The new regulations will enter into force in January 2006.

The motion (Swedish text version) is published on the Swedish site of the Ministry of Finance. Please contact the author if you wish to receive more information about the motion.

Sweden and the United States have signed a protocol amending the 1994 tax treaty between the countries. The amendments entail the elimination of the withholding tax on dividends payments from a subsidiary in one state to a parent company in the other state. Pension funds will also be exempted from withholding taxes on dividends from the other country. The protocol will enter into force during the spring of 2006 at the earliest. You can access the protocol from the Swedish site for the Ministry of Finance.

The leaders of Sweden’s four opposition parties have agreed upon a tax reform. If the alliance wins the governmental elections next year, their proposal will lead to major tax cuts, mostly in the area of income tax. Read more about the contemplated tax reform in The Local.

The Swedish government has finally announced its plans for reducing taxes on alcohol. The government’s move was long expected. The sales of the Swedish drinks monopoly Systembolaget have diminished significantly since the European Union last January forced the country to raise the legal limit on alcohol imports. This lead to a great increase in purchases of alcoholic beverages in the neighbouring countries, where alcohol is considerably cheaper. Since then it has been argued that the tax on hard liquor should be lowered by at least 40 per cent in order to rescue Systembolaget’s sales. On the other hand, voices were heard that the tax cuts would lead to an increase in women’s abuse and alcohol related injuries involving teenagers.
It was not until the beginning of August that the Swedish Prime Minister Göran Persson announced that he was in favour of lowering the country’s alcohol taxes. On the 23d August the government has officially made its plans known to cut the tax on spirits by 40%. Read more about it in The Local.