The Swedish Supreme Administrative Court delivered on 4 May 2004 a judgement in the case of Försäkringsaktiebolag Skandia and Ola Ramstedt v. Riksskatteverket (the National Tax Board).
The case deals with the Swedish tax rules relating to insurance contracts which distinguish between pension insurance and endowment insurance and apply different tax regime to them.
The Swedish Supreme Administrative Court states in the ruling (just as the Court of Justice of the European Communities did in June 2003) that the provisions on tax deductions for premiums paid under a occupational pension insurance policy (Sw: tjänstepensions-försäkring), requiring the insurance company to be established in Sweden, are not compatible with the rules concerning the freedom to provide services within the European Community (Article 49 of the EC Treaty).
Current Tax Regime
The relevant provisions of the Swedish Income Act specify certain conditions, which an insurance policy requires to meet in order to be treated as a pension insurance policy. The policy requires inter alia to be taken out with an insurance company established in Sweden. If this condition is not met, an insurance policy is treated as an endowment insurance policy. This applies to any policy, which is taken out with a foreign insurance company, even if it meets all the other conditions applying to a pension insurance policy.
Under the tax regime applying to occupational pension insurance policies taken out with a Swedish insurance company, premiums paid by the employer under the policy are immediately deductible in calculating his taxable income, within certain limitations.
However, the tax regime applying to occupational pension policies taken out with an insurance company established in another country is different from the regime applicable to Swedish companies. Such an insurance policy is termed endowment insurance and as far as the tax treatment is concerned, premiums paid by an employer are deductible only once the occupational pension is paid to the employee.
Furthermore, a higher tax rate – 30 per cent instead of 15 per cent – is levied on an occupational pension policy taken out with an insurance company established outside Sweden in respect of the special yield tax on pension. Such a policy is normally classified as an endowment policy according to the above and subject to the higher tax rate. The special yield tax is payable by the insurance company, with respect to an insurance policy taken out in Sweden, whereas the tax is payable by the policyholder for a contract classified as an endowment insurance policy.
The immediate consequence of the ruling from the Swedish Supreme Administrative Court is that an occupational insurance policy issued by an insurance company established in another EU member state, or in a country which has adopted the EEA treaty (Norway and Island), cannot be treated differently than a policy taken out in Sweden. Premiums paid by an employer under such a policy are therefore deductible, on the same conditions. (The ruling ought to have the same effect on insurance policies that are not occupational policies).
According to a memorandum presented by the Ministry of Finance in January 2004, life insurance policies issued by Swedish and foreign EU/EEA insurers shall be treated equally. However, the memorandum presents two different proposals regarding the issue discussed above. According to one alternative, the requirement that the policy shall have taken out in Sweden is retained. In the other alternative, this requirement is abolished. After the ruling from the Swedish Supreme Administrative Court, Sweden have to amend the current tax legislation in accordance to alternative 2. The proposal is expected to lead to a change of relevant legislation on July 1, 2004.
We can now foresee the most important legislative change in Sweden for foreign life insurers since Sweden implemented the third EU Directive on life insurance 1995. Now foreign EU/EEA life insurers, for the fist time, will be able to compete with Swedish insurance companies on the Swedish market.
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