EUROPE - The European Commission has asked Sweden to amend its tax rule on pension funds, arguing that the current legislation puts foreign schemes at a disadvantage when dividends are distributed within the country.  

Under Swedish law, non-resident pension funds are subject to domestic withholding tax on dividends, which amounts to 30%.

This tax can be cut to 15% if there is a bilateral treaty between Sweden and the country where the investor is based.

Swedish pension funds are exempt from the withholding tax on dividends, as well as from corporate tax.

The Commission said: "As a result of this system, the effective tax rate on dividends received by resident pension funds will frequently be lower than the 15% tax rate that is applied to non-resident pension funds."

It said the Swedish tax system discriminated against non-resident pension funds and contravened EU rules on the free movement of capital.

"In addition, it can deter non-resident pension funds from investing in Sweden," it said.

The Commission is now launching a new 'reasoned opinion' - which represents the second stage of an infringement procedure - asking Sweden to revise its tax rules.

Brussels first asked Sweden - as well as Czech Republic - to change their pensions tax laws in October 2010.

Following the launch of the second reasoned opinion, if the rules are not brought into force within two months, the Commission may refer the matter to the EU Court of Justice.

Brussels has called on several member states to amend tax regulation for pensions, including Germany and Spain.

In May last year, Brussels took France to the European Court of Justice over similar issues.

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