In brief
The Swedish Supreme Administrative Court referred a case to the Court of Justice of the European Union (CJEU) concerning withholding tax on dividends paid to foreign companies reporting tax losses, highlighting complex and significant implications for such companies. The case addresses whether Swedish tax rules requiring foreign companies to recalculate tax losses under Swedish law to reclaim withholding tax violate the EU free movement of capital.
- Case background and significance: The referral involves a foreign company that received dividends subject to Swedish withholding tax while reporting tax losses in its home country, facing demands to prove tax losses under Swedish rules to reclaim tax. This impacts many foreign companies receiving dividends from Sweden and those in other EU states with similar rules.
- Swedish withholding tax system: Sweden withholds up to 30% tax on dividends paid to foreign companies, while domestic companies add dividends to taxable income and pay tax only if profitable, creating different treatments based on residency and tax status.
- Challenges of dual tax calculations: The Swedish Tax Agency’s requirement for foreign companies to recalculate tax results under Swedish rules poses enormous technical and financial challenges, potentially making compliance impossible or prohibitively expensive, especially for companies investing across multiple EU states.
- Legal question and potential impact: The Supreme Administrative Court seeks a CJEU ruling on whether these evidentiary requirements breach the EU free movement of capital. The case, heard by the CJEU Grand Chamber, could clarify the legality of such requirements and influence investment climates in Sweden and the EU.
In depth
On 10 February 2026, the CJEU held an oral hearing in the Grand Chamber based on the referral from the Swedish Supreme Administrative Court on 25 March 2025.
We welcome that the Swedish Supreme Administrative Court decided to request a preliminary ruling CJEU in the relevant case concerning withholding tax on dividends from Sweden. The case is of great interest to all companies that report tax losses and receive dividends from Swedish companies, partly because of the enormous amounts that are distributed as dividends and partly because of the large number of companies affected by the issue. Virtually all foreign companies that receive dividends from limited holdings in Swedish companies and at the same time report a tax loss are affected by the outcome of the case. It is also of interest to companies who report tax losses and receive dividends from companies resident in EU member states with rules similar to the Swedish deferral rules introduced 2020 or has ongoing tax litigations for years before any deferral rules were introduced.
Unfortunately, EU law is often not given the weight it deserves in Swedish courts' assessment of direct tax issues, why Baker McKenzie welcomes the Supreme Administrative Court's decision to seek a preliminary ruling.
Tax on dividends from a Swedish company to a foreign recipient company is generally withheld at up to 30% and remitted to the Swedish Tax Agency by Euroclear. This tax is called withholding tax in Sweden. The tax rate may be reduced due to a tax agreement that Sweden has entered into with the country in which the recipient company is resident.
As opposed to a foreign recipient of dividend, a Swedish recipient of a corresponding dividend is not subject to withholding tax; instead, the dividend is added to the company's taxable income and taxed if there is an aggregate taxable profit. A Swedish company is therefore not taxed immediately if it reports a tax loss.
The case referred to the CJEU concerns a foreign company that in 2012 received dividends subject to withholding tax from Swedish companies. The recipient company reported tax losses in its country of residence. The dispute arose when the company, which sought to enjoy the same taxation as a Swedish company in a similar situation by requesting a refund of withholding tax, had to prove to the Swedish Tax Agency that it also reported a tax loss under Swedish rules. In other words, the company must, according to the Swedish Tax Agency, make two tax calculations, one according to the rules of its home country and one according to Swedish rules. The Swedish Tax Agency bases this view on the preparatory work for the deferral rule that came into force 1 January 2020, as a result of CJEU case law from 2018.
If the Swedish Tax Agency's view remains predominant, all companies in a similar situation to the complainant in the case will need to recalculate their tax result under Swedish tax rules, which is an extremely complex, if not outright impossible, task. Indeed, for a large company, compiling and calculating the tax results under the tax rules of its state of residence is already a major enterprise with IT systems set up, full-time employees working year-round on the tax result. Recalculating this tax result according to Swedish rules would represent enormous challenges from both an IT perspective and the required technical expertise to re-state all transactions according to Swedish rules and would also raise tax technical queries that could not be solved.
Even assuming, as a hypothesis, that this issue could be solved, the costs for this would be prohibitively expensive (not only because of the necessity to rely on external consultants, but also the costs of employees of the company) and would likely surpass any recovered withholding tax. Furthermore, the tax deficit may have grown over several years, and the recalculation must therefore also take into account previous years, which can sometimes stretch back decades.
It must be noted that these technical and financial obstacles would be multiplied if the taxpayer invested in shares of companies established in several member states and is receiving dividends from these EU-based companies. Indeed, the re-statement and recalculation of its domestic tax results would be required for each “dividend source country”, which would obviously represent a daunting and unrealistic obligation for the taxpayer.
This is of course, if at all possible, unsustainable from the taxpayer's point of view and, in our opinion, constitutes discrimination that is contrary to the free movement of capital and EU legal principles. Such a situation would also have risked reducing the willingness to invest in Sweden at a time when Sweden needs more investment. If, as mentioned above, other EU member states adopt the same stance as the Swedish Tax Agency, it could also cool the investment climate throughout the Union. Ultimately, one cannot be considered to have a right if the cost of enjoying that right exceeds the benefit that the right would have provided or if it is impossible to prove the right.
The main question that the Supreme Administrative Court has now asked the Court of Justice of the European Union to give a preliminary ruling on is whether these evidentiary requirements are compatible with the free movement of capital under EU law. Even if the deferral rule cannot be applied due to retroactivity, the answer from the Court of Justice of the European Union should nevertheless be able to provide guidance for future cases covered by the deferral rule, as an answer that the high requirements are contrary to EU law also affects situations after 1 January 2020.
The case was heard before the Grand Chamber of the CJEU on 10 February 2026, meaning that the cases are decided on by fifteen judges. Only about 10% of the cases for which the CJEU provides preliminary rulings are decided by the Grand Chamber. At the end of the hearing, the Advocate general announced that he will deliver his opinion on 4 June 2026.
We hope that the Court of Justice of the European Union will issue a clear ruling that safeguards the free movement of capital and states that the type of evidentiary requirements described above are not compatible with EU law.