The Court of Justice has given a ruling on legislation governing the taxation of savings in the form of capital life assurance which applies a different regime according to the place where the insurance company is established.

The Swedish legislation in question lays down a different tax regime for capital life assurance depending on whether it was taken out with companies established in Sweden or with companies established outside Sweden:

• Swedish insurance companies must pay tax on the yield from insurance capital, which is calculated in a standard way and levied on the insurer.

• Persons domiciled in Sweden who have taken out insurance with companies not established in Sweden must pay tax to the Swedish State on the premiums paid. Policyholders must register themselves and declare payment of premiums to a central body (Skattemyndigheten). This body may, on the application of the policyholder, grant an exemption from payment of the tax or reduce the tax by one half if the company with which the insurance has been taken out is subject, in the State in which it is established, to tax on revenue comparable to that which insurance companies established in Sweden must pay. The tax on premiums may be reduced by half if the foreign tax is at least one quarter of the tax applicable in Sweden and may be reduced to zero if the foreign tax is at least one half of the tax applicable in Sweden.

Jessica Safir took out capital life assurance with a company established outside Sweden. She applied to the Skattemyndigheten for exemption from payment of tax on insurance premiums, as provided for by the legislation. Skattemyndigheten decided to reduce the tax by only one half. Jessica Safir then sought annulment of that tax assessment decision before Länsrätten i Kopparbergs Län (County Administrative Court for the County of Kopparberg).

By the question which it referred to the Court, the Swedish court asked in substance whether application of the Swedish legislation relating to the taxation of capital life assurance is contrary to the Treaty.

In its judgment the Court observes first of all that, although direct taxation does not as such fall within the purview of the Community, the powers retained by the Member States in this field must nevertheless be exercised consistently with Community law.

The Court then goes on to examine whether the Swedish legislation creates obstacles to the freedom to provide services and whether, if this is so, such obstacles are justified. Here the Court observes that the Swedish legislation has a number of elements liable to dissuade individuals from taking out capital life assurance with companies not established in Sweden and liable to dissuade insurance companies from offering their services on the Swedish market.

For example, persons holding policies with companies not established in Sweden must register themselves and declare premium payments to Skattemyndigheten; they must also pay the tax themselves by finding the necessary funds for this purpose, whereas they would not be obligated to do these things if they took out such insurance with companies established in Sweden.

Furthermore, if a person holding a policy with a company not established in Sweden applies for exemption from tax or for reduction of tax on his premiums, Skattemyndigheten requires precise information concerning the revenue tax to which that company is subject, unless the authority already has this information.

The Swedish legislation also provides that the determination of the tax applicable to insurance premiums is to depend on an assessment by the tax authorities of the tax regime applicable to the insurer not established in Sweden. As a result, different assessments of the same tax regime applicable to insurers not established in Sweden have been made in the past, which is liable to create uncertainty for persons taking out insurance.

Finally, although the Swedish legislation allows account to be taken of the tax applicable in another Member State, there is nevertheless a threshold effect arising from the fact that payment of such tax is not taken into account if it does not amount to at least one quarter of the tax applicable in Sweden.

The Court observes that other systems which are more transparent and also capable of filling any fiscal vacuum whilst being less restrictive of the freedom to provide services are conceivable.

In those circumstances, the Court concludes that the reasons relied on by the Swedish Government, based on considerations relating to the efficacy of the tax regime, are not such as to justify the inclusion in national legislation relating to the taxation of capital life assurance of elements as restrictive of the freedom to provide services as those contained in the Swedish legislation.

Unofficial document for the use of the media, not binding on the Court of Justice.
This press release is available in English, French and Swedish.

For the complete text of the judgment, please see our Internet site http://curia.eu.int from 3 o' clock today.

For further information, please contact Jessica Larrsson tel: (352) 4303 3651 fax: (352) 4303 2033