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Participation
exemption and Controlled Foreign Corporation (CFC) taxation in Sweden – new
instruments for international  tax
planning.

Sweden has
a classical system of corporate taxation subjecting company profits to
(economic) double taxation, first at the company level at a rate of, presently,
28% and then a second time at the shareholder level at the appropriate tax rate
of the recipient; 30 percent for individuals, 28 percent for corporations, 30
percent (withholding tax) for non-residents (but subject to tax treaty
reduction). In order, however, to prevent further (chain) taxation on
inter-corporate profit distributions Sweden, traditionally, has operated
a partial participation exemption system exempting dividends on controlled
holdings defined as shares held for business purposes (näringsaktier) from tax
. Capital gains on the other hand on the alienation of these shares have
traditionally always been subject to full corporate tax.

Basically,
this system of taxation has also been adopted in all of Sweden’s tax
treaties. However, the treaties have always upheld the condition that the
profits of the distributing company in the pertinent tax treaty jurisdiction
have been effectively subjected to a “normal” level of (underlying) corporate
tax.

[1]


The purpose hereof is of course to maintain or to safeguard the first level tax
of the classical system also with regard to foreign investments.  This regime, when Sweden adopted its general tax
reform in 1991, was extended also to dividends paid from controlled companies
in non-treaty states.

[2]


In all cases and with no exceptions Sweden has however preserved full
corporate taxation of capital gains also with regard to foreign share holdings.

In the
aforementioned 1991 tax reform Sweden also adopted a controlled foreign
corporation (CFC) tax regime allowing immediate (business income) taxation of
shareholders in Sweden owning 10 percent or more of the foreign company and
where simultaneously 50 percent thereof was controlled by Swedish residents for
non-distributed profits derived by the foreign company if the tax level was
very low or non-existent. The key issue according to the wording of the law was
to determine whether or not the level and the nature of underlying corporate
tax in the country involved was “similar” (likartad) to the Swedish corporate
tax. Some vague statements in the preparatory works of the legislation
suggested that a level of about 12 percent was sufficient.  A subsequent distribution of such profits was
then of course exempted from tax but no relief (credit) was granted for
withholding taxes paid in the jurisdiction of the distributing company. Capital
gains tax was enforced also in these cases. In practise however this
CFC-legislation was very ineffective because it only applied to direct (first
level) holdings and only to non-treaty resident subsidiaries. All profits
derived by companies located in (white-listed) treaty states were thus
automatically exempted from CFC taxation treatment with the exception of
certain, but very few, notoriously low tax jurisdictions.

[3]

In two
legislative steps and with full implementation as of 1 January 2004 Sweden now
applies a full participation exemption regime covering both dividends and
capital gains
within the corporate sector and a completely new CFC taxation
regime. This CFC-legislation encompasses basically all foreign company earnings
both passive and active, irrespective of treaty or non-treaty location and
including also indirect holdings if the company pays tax at a rate of less than
28 percent of a tax base of 55 percent of its profits computed under Swedish
tax rules (as defined) or effectively 15.4 percent. The law applies only to
resident shareholders owning 25 percent or more of the capital or votes of the
company . The previous 50 percent Swedish shareholder control requirement has
been abolished. Losses of CFCs, with a few restrictions, are deductible in Sweden. Also,
and in contrast to the previous regime, the taxpayer is entitled to a credit of
the underlying corporate tax paid by the controlled company.

As already
mentioned the earlier CFC regime also exempted, or “white-listed”, most treaty
state companies from CFC-taxation in Sweden. Under the new regime and in
addition to its general provisions there is a “supplementary rule” in the nature
of a safe haven clause referring also to a list of states determining in which
cases CFC-taxation shall take place. This new list is extremely wide. In fact
it encompasses each and every tax jurisdiction in the world! It is frequently
referred to as the “white list” but should more appropriately be called a
white-, black- and grey list of the whole world. Companies located in countries
on the white list are a priori and automatically exempted from the CFC taxation
without any investigation required of the underlying company tax. Companies
situated in countries which are on the so called grey list are also exempted
with the exception of companies that conduct certain types of perceived low or
no-tax business that are specifically mentioned in the law. If however it is
proven that they have indeed paid at least 15.4 percent corporate tax,
something that may occur if the company has different types of income taxed at
different rates, CFC taxation is waived under the general rules of the CFC
regime. All remaining countries of the world are blacklisted for CFC-taxation
purposes, but again, such tax is not imposed if proof is demonstrated that the
pertinent company meets the underlying 15.4 percent tax test.

An
important restriction as far as tax treaty states are concerned is that
the  white-listing only applies to such
incomes or tax payers that are covered by the rules of the treaty that limit
tax liability. If thus a company in a treaty state is excluded from treaty benefits
according to specific provisions in the treaty, e.g. companies situated on
Labuan Island according to the treaty with Malaysia, or Maltese companies
benefiting from the special tax breaks under “the Malta
Financial Services Centre Act
” in the notes to our treaty with Malta, CFC
taxation in Sweden may be imposed.

The lists
form an integral part of the law itself (annexed to Chapter 39 a, 7 § of the
Income Tax Law (Inkomstskattelagen)). 
All future additions to or deletions from the lists must consequently go
through the ordinary law making process requiring Parliament approval. It will
not be possible to obtain an advance ruling on the applicability of the CFC
regime regarding companies of 
black-listed countries as such a determination must be based on the
specific facts of the income derived by them and does not address any matter of
tax principles of the legislation.  

The
supplementary rule divides the countries of the world into five (legally
undefined) geographical regions: Africa, America,
Asia, Europe and Oceania. It is further structured
in a somewhat confusing manner where, on the one hand, all companies of the
countries of Africa, Asia and Europe, are exempted from CFC treatment unless
specifically mentioned but where, on the other hand, companies of the countries
of America and Oceania are exempted from CFC treatment only to the extent that
they are mentioned in the list.

[4]

For quick
reference, and this is one of the main purposes of this paper, the following
lists divide all 228 of the countries of the world that have both executive and
legislative branches

[5]


in alphabetical order and irrespective of their geographical location into
three categories:

  1. Countries, the companies of
    which are always exempted from CFC treatment  (white list)
  2. Countries, the companies of
    which are always subject to CFC treatment unless they meet the
    aforementioned 15.4 percent subject to tax test (black list)
  3. Countries where certain
    companies are subject to CFC treatment because they conduct business of a
    specified nature (unless they meet the aforementioned 15.4 percent subject
    to tax test) but where all other companies are exempted from CFC treatment
    (grey list).

By simply
looking up the country in question on one of the lists, it is thus quite easy
immediately to determine to what extent the companies located therein may be
subject to CFC tax treatment in Sweden.
With regard to companies in white-listed jurisdictions there is, which has
already been mentioned, automatic exemption from CFC treatment requiring no
specific reporting to the tax authorities. With regard to grey or black listed
country companies it should be underlined again that  CFC taxation 
will only take place if the tax levied in the pertinent tax jurisdiction
is in fact below the 15.4 percent tax threshold. More correctly,
therefore, is to say that the companies on these lists are always subject to
CFC scrutiny
and its controlling shareholders in Sweden must each and every year
submit tax returns to be examined by the Swedish authorities for CFC taxation
purposes.

Whereas
every effort has been made in this article to offer current and correct
information, it is nevertheless intended to serve only as general guidelines.
The information should thus be used as a research tool only and readers are
advised to consult with professional advisors concerning these matters.

This
article will also discuss some reactions to and some possible taxpayer
behavioural consequences of the new participation exemption and CFC regimes in Sweden.

The underling
of certain states in the lists indicates the existence of a tax treaty.

White
list

(All company profits exempted from CFC
treatment in Sweden
irrespective of underlying tax.)

Afghanistan

Albania

Algeria

American Samoa

Angola

Argentina

Armenia              

Austria

Azerbaijan

Bangladesh

Barbados

Belarus

Benin

Bhutan

Bolivia

Bosnia and Herzegovina

Botswana

Brazil

Bulgaria

Burkina Faso

Burma

Burundi

Cambodia

Cameroon

Cap
Verde

Central African Republic

Chad

Chile

China

Christmas Island

Cocos
(Keeling) Islands

Colombia

Comoros

Congo, Democratic Republic
of the

Congo, Republic of the

Cote d’Ivoire

Croatia

Cuba

Czech Republic

Denmark

Dominican Republic

East Timor

Ecuador

Egypt

El
Salvador

Equatorial Guniea

Eritrea

Ethiopia

Falkland Islands

Faroe Islands

Finland

France

French Guiana

Gabon

Gambia, The

Georgia

Germany

Ghana

Greece

Greenland

Guatemala

Guinea

Guinea-Bissau

Guyana

Haiti

Honduras

Hungary

India

Indonesia

Iran

Iraq

Israel

Italy

Jamaica

Japan

Jordan

Kazakhstan

Kenya

Korea, North

Korea, South

Kuwait

Kyrgyzstan

Laos

Latvia

Lesotho

Libya

Lithuania

Macedonia

Madagascar

Malawi

Malaysia

Mali

Malta

Mauritania

Mauritius

Mayotte

Mexico

Moldova

Mongolia

Morocco

Mozambique

Namibia

Nepal

New
Zealand

Nicaragua

Niger

Nigeria

Norway

Oman

Pakistan

Paraguay

Peru

Philippines

Poland

Portugal

Quatar

Reunion

Romania

Russia

Rwanda

Saint Pierre and Miquelon

Sao Tome and Principe

Saudia Arabia

Senegal

Sierra Leone

Slovakia

Slovenia

Somalia

South Africa

Spain

Sri
Lanka

Sudan

Suriname

Swaziland

Syria

Taiwan

Tajikistan

Tanzania

Togo

Trinidad
and Tobago

Tunisia

Turkmenistan

Uganda

Ukraine

United
Kingdom

United States

Uruguay

Uzbekistan

Venezuela

Vietnam

Yemen

Zambia

Zimbabwe

BLACK
LIST

(All company profits subject to CFC tax
treatment if underlying tax is less than 15.4 percent)

Andorra

Anguilla

Antigua
and Barbuda

Aruba

Bahamas, The

Bahrain

Bermuda

British Virgin Islands

Cayman Islands

Cook Island

Djibouti

Dominica

Fiji

French Polynesia

Gibraltar

Grenada

Guadeloupe

Guam

Guernsey

Jersey

Kiribati

Liberia

Liechtenstein

Macao

Maldives

Man, Isle of

Marshall Islands

Martinique

Micronesia, Federal States of

Monaco

Montserrat

Nauru

Netherlands Antilles

New Caledonia

Niue

Norfolk Island

Northern Mariana Islands

Palau

Papua New Guinea

Pitcairn Islands

Puerto Rico

Saint Kitts and Nevis

Saint Lucia

Saint Vincent and the Grenadines

Samoa

Seychelles

Solomon Islands

Tokelau

Tonga

Turks and Caicos Islands

Tuvalu

United Arab Emirates

Vanuatu

Virgin
Islands

GREY
LIST

(All company profits exempted from CFC tax
treatment except companies indicated whose underlying tax is less than 15.4
percent)

Australia (Companies conducting banking
activities not subject to the normal income tax).

Belgium 
(Coordination centres (coördinatiecentra) and companies deriving
financial income from activities for which advance rulings on so called
informal kapital has been granted)

Belize (Companies deriving income not
subject to the normal income tax).

Brunei Darrussalam (Companies deriving income not
subject to the normal income tax).

Canada (Companies deriving banking income
not subject to the normal income tax).

Costa Rica (Companies deriving foreign income
exempted from taxation due to foreign source).

Cyprus (Companies deriving income not
subject to the normal income tax).

Estonia (Companies deriving income from banking and
finance activities including financial and insurance operations)

Hongkong (Companies deriving foreign income
not subject to tax).

Iceland (Companies deriving income from such banking,
finance and insurance activities not subject to the normal income tax).

Ireland (Companies from banking, finance
and insurance activities).

Lebanon (Companies deriving income from banking,
finance and financial and insurance activities).

Luxembourg (Companies deriving income from such insurance
activities mentioned under chapter 39 a) paragraph 7 subsection 2 of the Income
Tax Law).

Netherlands (Companies deriving income from
such financial activities mentioned under chapter 39 a) paragraph 7 subsection
2 2) of the Income Tax Law if appropriation is made to special risk reserve)

Panama (Companies deriving foreign source income not
subject to tax)

San Marino (Companies deriving income from
such banking, finance and other financial and insurance activities not subject
to the normal income tax).

Serbia
and Montenegro

(Companies deriving income from such banking, finance and other financial and
insurance activities in Montenegro not subject to the normal income tax).

Singapore (Companies deriving income from
such banking, finance and other financial and insurance activities not subject
to the normal income tax).

Switzerland (Companies deriving income from
banking, finance and financial and insurance activities).

Thailand (Companies deriving banking income
not subject to the normal income tax).

Turkey ( Companies deriving income from
such banking, finance and other financial and insurance activities not subject
to the normal income tax).

Comments:

The main
difference between the old and the new CFC legislation is that the new one
reaches out and applies also to second or third etc. tier holdings. Under the
past regime only direct holdings of low taxed foreign companies were caught by
CFC taxation. The possibility of avoiding CFC taxation under the former
legislation by simply positioning the low tax company under an exempt
treaty-state holding company, (and thus also effectively concealing the
existence of the CFCs), is now gone. This of course will undoubtedly mean that
a lot more foreign corporations will now be subjected to CFC tax treatment in Sweden, which
from the point of view of the Swedish investor is a negative aspect involving
additional tax costs. Due also to the annual 
reporting requirements following from this CFC application,  the compliance costs of the new legislation
will also become an extra burden.

The
greatest advantage of the new Swedish CFC regime and its world wide
all-embracing lists of foreign tax jurisdictions is of course that it provides
a very precise identification of all foreign companies targeted for CFC tax
treatment. A further advantage is that the 15.4 percent test is exact
and there is no longer any need for determining the (illusive) meaning of what
is meant by  “a similar taxation” etc. A
further bonus, as already mentioned, is that CFC treatment kicks in only at 25
percent control of votes or shares, up from 10 percent under the previous
regime

[6]


(thus allowing consortiums of as few as five non-related shareholders to own
and operate low or no tax companies in pure tax havens without CFC-taxation
consequences.) Very important too is the fact that the new law, in contrast to
its forerunner, allows for a credit of the underlying foreign tax paid
by the foreign company (including too the benefit of the three year credit
carry forward mechanism for unrelieved foreign taxes).

As
mentioned, the new law also allows for a deduction of CFC losses. This feature
is quite interesting considering that tax consolidation between Swedish
companies, by means of group contributions, is allowed only at a minimum
company control of 90 percent. A problem that has not been addressed in the
legislation, however, is how to determine the 15.4 percent taxes paid criteria
when, due to its loss position, the foreign company has not paid any tax.

A general
observation of the new CFC taxation regime together with its new credit of
foreign taxes mechanism, reflecting  its
moderate nature, is that it compares more or less fully with the taxation that
has always taken place in Sweden
of foreign permanent establishments, a taxation which has never given rise to
any exaggerated emotions in our country. Such establishments  in almost all cases are indeed also
‘controlled’ and the taxation in Sweden  thereof occurs in all cases quite irrespective
of the level of control and foreign tax incurred.  Maybe it can thus be assumed that that the
use of permanent establishments for conducting foreign operations for tax
purposes will diminish.

[7]

Also, and
quite generally, our CFC rules are more advantageous also because they ‘accept’
an underlying tax of only  15.4 %  in the jurisdiction of the foreign company
whereas a corresponding investment in a Swedish subsidiary will always trigger
a tax of 28%.

[8]

A most
positive aspect with regard to CFC taxation 
in general, and something which in the public debate is mainly
overlooked, is the fact that, in the state of the controlling shareholder, it
automatically and to a very large degree does away with the problem of transfer
pricing regarding transactions between the Swedish parent company and the
foreign CFC. The reason herefor is of course that there simply is no incentive
for transferring profits to a controlled company abroad through pricing
arrangements when that same income is ‘clawed back’ by means of a CFC tax rule.
On the contrary, there will rather be a preference not to incur taxes in the
CFC jurisdiction as they will usually give rise to negative cash-flow
consequences or possibly excess  foreign
credits. Considering that transfer pricing is especially problematic with
regard to low- or no-tax countries,  this
benefit should not be underestimated. An arm’s length problem may of course
still remain in the country of the CFC but that will be of no concern to the
Swedish authorities. (These transfer pricing circumstances also compare
directly to the situation of foreign permanent establishment investments.)

Despite the
above mentioned attractions of the new CFC regime, it has nevertheless has been
subjected to strong criticism by various members of tax lobbies and taxpayer
organisations, most significantly by Mr. Krister Andersson, Head of the Tax
Department of the Confederation of Swedish Enterprise, who slated the new
legislation in an article in Svensk Skattetidning  (2004 page 72), mockingly titled “CFC-rules
as a means for repressing prosperity”.

This,
however, reveals a blind spot to the many 
advantageous tax effects and interesting tax planning opportunities for
Swedish foreign investments following in particular from the supplementary
rule.
As indicated above companies held in white-listed countries are
automatically exempted from CFC punishment in Sweden no matter what tax they have
paid in their home jurisdiction. The same applies also to all the companies on
the grey list  which are not specifically
mentioned. These lists comprise not only the vast majority of foreign tax
jurisdictions on the whole but indeed also Sweden’s most important trade
partners and countries in which Swedish investments are significant. It is
worth mentioning that the supplementary rule was introduced only at a very late
stage in the legislative process, after strong criticism from  the Swedish business community of the initial
CFC legislation proposals. It is not known how extensive the underlying  investigation of the tax systems in the
white-listed countries has been. Nor have the criterias for the (automatic)
exemption granted in these cases always been discussed in the preparatory works
of the legislation. But it is of course presumed that the outcome has been
based on some kind of an analysis that, in general, these states, in comparison
to Sweden,  have a corporate tax
structure based on a traditional method of computing the tax base and a tax
rate meeting the 15.4 percent threshold, thus upholding the first level of
corporate taxation in our classical system.

On further
investigation however, on a case by case basis of the tax systems of a
considerable number of countries on the white and grey list, one will find very
significant and numerous tax incentives of all kinds reducing taxation far
below the 15.4% level. This, in conjunction with the abolishment of the
requirement of the former participation exemption regime that the underlying
profits of the distributing controlled company be subject to the “normal” or
“general” corporate tax, certainly constitutes a very significant reduction of
the overall tax burden sometimes wiping out completely the first level of tax
of our classical corporate tax system.

It is of
course impossible in this paper to provide any worthwhile empirical support for
this conclusion but it is a well-known fact that many countries, also those on
our new white and grey  lists, are
engaged in fierce tax competition ( “the race to the bottom”) providing
numerous and advantageous tax breaks to foreign investors. A very unscientific
indication hereof is the fact that if, for instance, one googles “tax
incentives China”
one scores 2 600 000 hits on the webb. The same test with regard to India results in 1 800 000 hits, Poland 680 000, Latvia
228 000 and Malta, (which
according to certain sources is now intensively marketed in Sweden for
international tax structuring purposes), 187 000. All these countries are on
the white list. It can be expected that Swedish corporate tax planners have
gone into top gear in the exploration of these tax benefits.

[9]


And the legislator, if he wishes to change the lists in order to put a stop to
unwarranted use thereof, has to go through the full tedious law making process
and will have difficulties in staying abreast with future tax incentive
measures abroad.

A
simplification following from the new domestic 
participation exemption regime is that all the numerous and intricate
provisions in our treaties dealing with Swedish taxation of intercorporate
dividend receipts  have, in one stroke,
been rendered obsolete. The same applies of course to most treaty capital gains
tax provisions applicable to companies.

An
additional point worth mentioning regarding the new participation exemption and
CFC regimes is their usefulness to third state investors exploiting Sweden as a
stepping stone for foreign investments. This is due to the quite unique combination
in Swedish domestic tax law of

a)      

a
complete absence of thin capitalisation rules,

b)      

 unlimited deduction for arm’s length interest
expense and

c)      

no
withholding tax on outward interest payments,

all of
which is available to both corporate and individual investors resident in both
treaty and non treaty states.

Thus, with
a high level of loan capitalisation of a Swedish holding company, any
attribution of income to this company under CFC rules can  be offset by its interest expense.
Consequently such a  company is sheltered
from CFC tax effects to a large degree. In addition to the exemption from
Swedish withholding tax on interest payments mentioned under c), foreign
residents are of course also exempted from any capital gains taxes in Sweden when
selling their Swedish shares. A further benefit 
upon a divestment of a Swedish holding company  may also result from the value of any
residual credit carry forwards.

The
investor can of course also shop our tax treaties for reduced withholding
taxes, generous matching credits and – important to foreigners - negligible
limitation of benefits provisions etc. The somewhat surprising bottom line
effect of all this  is that our treaty
network, which  - one would expect -
should first of all be to the benefit of Swedish companies, is instead being
handed out “on a golden platter” to their foreign competitors. (There is of
course no harm as such in attracting foreign holding companies to our country
but they don’t provide any job opportunities.)

In Sweden too, the
debate regarding the expatriation of 
jobs and businesses in the wake of the globalisation process and the
deregulation of markets is very intense. Not a day goes by without the
announcement of new off-shoring business decisions.

In its
recent annual report the “Invest in Sweden Agency”, ISA , (the activities of
which are financed by the government), has disclosed its concern that foreign
investments into Sweden are waning and that our country is losing jobs to
(mainly) China and India not only with regard to basic manufacturing processes
but now also in sectors of advanced production and even in research and
development. In order to improve this situation 
ISA recommends, with regard to taxation, that Sweden should reduce its corporate
tax (to 23%) and to introduce tax incentives for investments in R&D.

[10]

Mainly, the
concern about the migration of Swedish companies and jobs has focused only on
the savings that can be made on the low cost of labour particularly in our new
EU partner states and in the Far East. The
extent to which our new CFC regime and participation exemption rules have
become a contributing factor  to
our unemployment situation and the paling of Sweden’s attraction to foreign
investors  have, however, gone unnoticed
so far. But the tax benefits that can be reaped from these new rules are too
significant to be ignored.

With this
in mind a treasury source revealed both 
frustration and resignation that Swedish business circles, after having
been given both full participation exemption and the most lenient CFC tax
regime in the world, “ still keep barking!”

 

Peter
Sundgren

(peter@sundgren.net)

 


[1]

For instance, the Sweden-China treaty reads as follows (article 23,
section 2, subparagraph (b)): “Notwithstanding the provisions of subparagraph
(a), dividends paid by a company being a resident of China to a company which
is a resident of Sweden shall be exempt from Swedish tax to the extent that the
dividends would have been exempt under Swedish law if both companies had been
Swedish companies. However, this exemption shall apply only to the extent the
profits out of which the dividends are paid have been subjected to the normal
(emphasise added)corporate tax in China
or an income tax comparable thereto, either in China or elsewhere”.

 In a
number of treaties and in very special cases , Sweden has however granted a so
called matching exempt allowing exemption from tax on dividends received also
where the payee of the dividend has not been subjected to tax or has been
granted a preferential tax status due to tax incentives measures adopted to
encourage important investments to the national economy. Se for instance
articles 23 d) of the treaties with Estonia and Latvia, article 24 d) of the
treaty with Lithuania and article 22 5) of the treaty with Mexico. These
exemptions have been carefully considered on a case by case basis and in most
cases granted only for a limited period of time.

[2]

For a number of years before this legislation was put in place
dividends received for shares  held for
business purposes in companies of non-treaty states were exempted on a case by
case basis according to a special dispensation regime.

[3]

A lively discussion has been generated in Sweden regarding the overriding
effect of the CFC legislation visavi EU law and our  tax treaties.

[4]

This has given rise to certain peculiarities. For instance, Turkey is listed under both Asia and Europe. Cyprus
is listed under Asia. And Hawaii
is listed as a separate territory under Oceania and not America!

[6]

The level of minimum control
requirement in most foreign CFC tax systems is also 10 percent.

[7]

Indeed, in its review of the original government report on the new CFC
legislation, SOU 2001: 11, .the Jönköping International Business School  (JIBS), (see also IUR-INFO 3/2001),
specifically  recommended that the CFC
regime should adopt as a general rule that all controlled foreign
corporations should be taxed as foreign permanent establishments,
white-listing,  however,  all companies specifically in tax treaty
states, which, after careful investigation of their domestic tax situation,
would merit such an exemption. This, of course, would also lead to a very
extensive white-list just like the one adopted in the new legislation. In
effect and in its application, therefore, the new CFC law very closely
resembles the JIBS proposal.

[8]

It is understood that, in order to obviate  CFC tax consequences in the countries of the
investor, certain low, or no-tax jurisdictions provide special rules  allowing for a payment of a voluntary or
negotiated tax to be paid by the controlled company. Nothing prevents such tax
payments from being accepted by the new Swedish CFC regime.

[9]

After a ruling in 2004 by the Swedish Supreme Administrative Court
regarding the interpretation of the subject-to-tax rule in the Sweden-Peru tax
treaty giving rise to double non-taxation on the sale of shares held by Swedish
residents, also Peru, which is a white-listed country for CFC tax purposes, has
emerged as a “hot” country for international tax structuring purposes.

[10]

At the same time – it is suggested
by this author – Sweden
should also abolish its taxes on royalties paid to foreign licensors.