According to the Supreme Administrative Court, residence determined by using the tie breaker rule in a tax treaty, also determines the residence according to domestic law. However, a new law has been approved making the effects of the court decision the same as before the decision. It could also be mentioned that the Supreme Court had to judge a similar case again and then in a plenum decision came to the opposite conclusion.

Thus, the effect is that a person having double residence, but due to the tie breaker clause in a tax treaty is not regarded as a resident of Sweden, will be taxed in Sweden to the extent this is possible under the tax treaty. For example, if the interest article gives the country of source the right to levy a tax of, say 15% of the gross interest payment, Sweden will charge that tax even though Sweden does not levy a withholding tax on interest according to domestic legislation. The person in question has to file a tax return stating his net interest income. Tax will be charged under ordinary rules for residents. If the tax due would be higher than 15% of the gross interest payment Sweden must reduce its charge to that level.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Per Snellman on tel: +468 613 9000, fax: +468 791 7511, e-mail: per.snellman@ey.se or enter a text search 'Ernst & Young' and 'Business Monitor'.