According to Swedish tax legislation, investment funds are taxed differently depending on if the are Swedish or foreign. The difference between the investment funds lies within the taxation of received dividends and the opportunity to shift the liability of tax of received dividends on to the funds shareholders. This measure is only available to Swedish funds. The question in this thesis is whether this difference is discriminatory against foreign investors and therefore constitutes a forbidden restriction against the free movement of capital stated in article 63 EUF Treaty.

The European Court of Justice (ECJ) has given several preliminary rulings on this type of legislation and its compatibility with the principle of free movement of capital. It is not compatible with the free movement according to the court. The reason is that the consequence of the legislation is less attractive for foreign investment funds because the taxation on received dividends, which leads to less dividends to shareholders. This national measure is therefore a forbidden restriction against the free movement of capital. The Swedish legislation has not been under such ruling from the ECJ, but it can be tested based on ECJ other rulings on the matter. The Swedish legislation has been tested in the domestic county administrative court, (Länsrätten i Dalarnas Län), who concluded that the legislation was discriminatory. They based their reasoning on ECJ case law.

However it has been stated within the treaty and from ECJ case law, that measures which has the result of a restriction can be justified as long the national rule is not discriminatory. The national rule on received dividends is discriminatory as it hinders investment funds to invest capital were they like and prevents Swedish companies from obtaining foreign capital.

Based on ECJ reasoning on the matter of tax upon received dividends for foreign investment funds and the aim of free movement of capital the Swedish legislation constitute a restriction against the free movement of capital. This restriction is discriminatory. On those grounds the legislation is no longer compatible with EU-law and a change in the legislation of taxation on received dividends is necessary in order to obtain the requirements EU has on the member states.