Policy, trends and developments
Describe the general government/regulatory policy for transfer pricing in your jurisdiction. To what extent is the arm’s-length principle followed?
The arm’s-length principle generally applies in cross-border transactions and is regulated in the Income Tax Act. Where an agreement to conditions that deviate from what would have been agreed between independent persons results in the profits of a company transferringbeing transferred to a person or company which is not subject to tax in Sweden in respect of that income, the income of the company taxable in Sweden is calculated as the income which would have been taxable in Sweden if those deviating conditions had not existed, provided that:
- there are reasonable grounds to assume that an economic relationship exists between the persons concerned (ie, the persons are considered as related); and
- the existing circumstances do not suggest that the deviating conditions have been agreed on for reasons other than the economic relationship.
An economic relationship is deemed to exist (ie, the persons are deemed to be related) if, for example, the taxpayer, directly or indirectly, participates in the management or supervision of the enterprise of another person or owns part of the capital of such an enterprise.
The Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines apply to the application and interpretation of the arm’s-length principle. This has been stated in Swedish case law, as well as in the preparatory works of tax legislation.
There is a general legal requirement for legal entities of a certain size to keep in-house documentation when they conduct cross-border transactions. Such documentation must be provided to the Tax Agency only at its request.
Trends and developments
Have there been any notable recent trends or developments concerning transfer pricing in your jurisdiction, including any regulatory changes or case law?
On March 1 2017 the Parliament (Swe: Sveriges Riksdag) adopted new legislation on transfer pricing documentation and country-by-country reporting. In so doing, Sweden has implemented the new standards as set up by the OECD in Chapter V of the Transfer Pricing Guidelines.
Domestic legislation and applicability
What primary and secondary legislation governs transfer pricing in your jurisdiction?
The arm’s-length principle is codified in Chapter 14, Section 19 of the Income Tax Act (1999:1229), which is the primary legislation governing transfer pricing in Sweden.
Case law and preparatory works may be relevant when applying and interpreting the principle. Administrative guidelines enacted by the Tax Agency may also apply.
Further, the Organisation for Economic Cooperation and Development Transfer Pricing Guidelines apply to the application and interpretation of the arm’s-length principle. This has been stated in Swedish case law, as well as in the preparatory works of tax legislation.
The transfer pricing documentation requirements are codified in the Tax Procedures Act (2011:1244) and the Tax Procedures Decree (2011:1261).
Additionally, the arm’s-length principle is generally codified in all tax treaties that Sweden has enacted with other countries.
Are there any industry-specific transfer pricing regulations?
What transactions are subject to transfer pricing rules?
The arm’s-length principle, as codified in Swedish law, applies to all agreements concluded between related persons which result in lower results for the entity subject to Swedish taxation.
How are ‘related/associated parties’ legally defined for transfer pricing purposes?
The definition of ‘related/associated parties’ used when applying the arm’s-length principle (as prescribed in Chapter 14, Section 19 of the Income Tax Act) is set out in Chapter 14, Section 20 of the Income Tax Act. According to the provision, persons are related if:
- a person, directly or indirectly, participates in the management or supervision of the enterprise of another person, or owns part of the capital of such an enterprise; or
- the same persons, directly or indirectly, participate in the management or supervision of both enterprises, or own part of the capital of the enterprises.
Are any safe harbours available?
Which government bodies regulate transfer pricing and what is the extent of their powers?
Only the Parliament (Swe: Sveriges Riksdag) can enact laws pertaining to taxes. Hence, transfer pricing regulations are subject to the conventional legislation process in Sweden.
Which international transfer pricing agreements has your jurisdiction signed?
Sweden has concluded a large number of tax treaties. A list can be found at the Tax Agency’s website.
To what extent does your jurisdiction follow the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines?
The Supreme Administrative Court (Swe: Högsta förvaltningsdomstolen) has stated that the OECD Transfer Pricing Guidelines apply when using and interpreting the arm’s-length principle as stated in the Income Tax Act. The guidelines are frequently used by the Tax Agency and the administrative courts when applying the arm’s-length principle.
Transfer pricing methods
Which transfer pricing methods are used in your jurisdiction and what are the pros and cons of each method?
Generally, there are no provisions concerning pricing methods in Swedish law. Instead, pricing methods have been discussed in case law (eg, the so-called Shell cases, the Supreme Administrative Court, RÅ 1991 ref 107), although sparingly. In the Shell cases, the Supreme Administrative Court (Swe: Högsta förvaltningsdomstolen) decided to use the comparable uncontrolled price method.
The same pricing methods as stated in the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines apply in Sweden. The methods stated therein are considered to be adequate transfer pricing methods. The different methods are more or less adequate to use depending on the specifics of each transaction. The pros and cons of each method in Sweden are similar to those in other jurisdictions using the OECD Transfer Pricing Guidelines.
Preferred methods and restrictions
Is there a hierarchy of preferred methods? Are there explicit limits or restrictions on certain methods?
There is no hierarchy of preferred methods of transfer pricing in Sweden that deviates from the recommendations in the OECD Transfer Pricing Guidelines. Nor are there any explicit limits on certain methods. When choosing a transfer pricing method, the taxpayer must make a case-by-case assessment on which method is more likely to result in the arm’s-length price for the specific transaction.
What rules, standards and best practices should be considered when undertaking a comparability analysis?
The same comparability analysis as follows from OECD Transfer Pricing Guidelines should be considered. Generally, it is advisable to gather independent and objective economic analyses, statistical evidence and data from database searches. The quality of such data is more important than quantity.
Are there any special considerations or issues specific to your jurisdiction that associated parties should bear in mind when selecting transfer pricing methods?
There are no such special considerations or issues specific to Sweden. The associated parties are free to use any transfer pricing method for the relevant transaction. However, the parties should perform a thorough analysis on what transfer pricing method will most likely result in the arm’s-length price for a specific transaction. Given the transfer pricing documentation requirement, some pricing methods may be more or less easy to document. Parties must bear in mind that they must state why a specific method was considered most appropriate for the pricing of an important transaction in the transfer pricing documentation. The parties must also be able to justify the use of the method in a potential tax audit.
Documentation and reporting
Rules and procedures
What rules and procedures govern the preparation and filing of transfer pricing documentation (including submission deadlines or timeframes)?
The Swedish rules governing transfer pricing documentation are found in Chapter 39, Sections 15-16 f of the Tax Procedures Act (2011:1244) and Chapter 9, Section 9-19 of the Tax Procedures Decree (2011:1261). In 2017 the Swedish transfer pricing documentation rules were amended to fit the new standards as set up by the Organisation for Economic Cooperation and Development (OECD).
According to the Chapter 39, Section 16 d of the Tax Procedures Act, the transfer pricing documentation must to be prepared at the time of the tax return. However, taxpayers are obliged only to file the documentation when requested by the Tax Agency.
There are no law stipulated time limits for a taxpayer to provide the Tax Agency with the requested documentation. The Tax Agency makes a case-by-case assessment on how much time the taxpayer should be granted to provide the Tax Agency with the information requested.
What content requirements apply to transfer pricing documentation? Are master-file/local-file and country-by-country reporting required?
Swedish legislation requires both master-file and local-file documentation. The requirement applies to multinational groups with an annual global turnover exceeding Skr7 billion. Multinational groups with fewer than 250 employees and with either an annual turnover of less than Skr450 million or a balance sheet total less than Skr400 million are considered as small and medium-sized enterprises and are as such exempt from the documentation requirements. The content requirements that apply are in line with the requirements set up by the OECD.
Additionally, and as of 2017, there is a requirement for country-by-country reporting which applies to multinational groups with an annual global turnover exceeding Skr7 billion. Such multinational groups must submit certain country-by-country data every year concerning each jurisdiction in which they are active. Usually, a multinational group is obliged only to file a country-by-country report with the Tax Agency if the parent company is a Swedish resident. However, all Swedish companies that are part of multinational groups must notify the Tax Agency which company within the group will submit the country-by-country report. The Tax Procedures Act governs the obligation to file a country-by-country report.
What are the penalties for non-compliance with documentation and reporting requirements?
There are no penalties or late filing fees for non-compliance with the country-by-country reporting requirement or the requirement for a company to notify the Tax Agency when part of a multinational group with an annual global turnover exceeding Skr7 billion. However, the Tax Agency has the right to issue an order to a company to submit notifications. Such an order may be accompanied with a fine if not followed.
What best practices should be considered when compiling and maintaining transfer pricing documentation (eg, in terms of risk assessment and audits)?
It is advisable to continuously assess the choice of pricing methods, as well as the written evidence gathered in order to be able to justify transactions.
Advance pricing agreements
Availability and eligibility
Are advance pricing agreements with the tax authorities in your jurisdiction possible? If so, what form do they typically take (eg, unilateral, bilateral or multilateral) and what enterprises and transactions can they cover?
Advance pricing agreements (APAs) are possible in Sweden and are governed by the Act on Advance Pricing Arrangements in International Transactions (2009:1289). The Tax Agency is the competent authority for such applications. Under the act, bilateral and multilateral APAs are possible. The act applies to both Swedish business owners and foreign business owners with a permanent establishment in Sweden – that is, anyone that is liable to pay taxes in Sweden or is expected to become liable to pay taxes in Sweden. APAs cannot cover simple matters or minor transactions.
Rules and procedures
What rules and procedures apply to advance pricing agreements?
The primary Swedish regulation concerning advance pricing agreements is the Act on Advance Pricing Arrangements in International Transactions (2009:1289). The Tax Agency is the competent authority for such applications. Additional rules are found in the Ordinance on Advance Pricing Arrangements in International Transactions (2009:1295).
How long does it typically take to conclude an advance pricing agreement?
There is no typical processing time for APAs because every application is handled on a case-by-case basis. The processing time is affected by, for example, whether the applicant has submitted all necessary information and the complexity of the matter.
What is the typical duration of an advance pricing agreement?
Three to five years.
What fees apply to requests for advance pricing agreements?
A fee is levied for the filing and negotiation of an APA. The applicable rates are as follows:
- Skr150,000 for an APA application;
- Skr100,000 for renewal of an existing APA without amendments; and
- Skr125,000 for renewal of an existing APA with amendments.
Are there any special considerations or issues specific to your jurisdiction that parties should bear in mind when seeking to conclude an advance pricing agreement (including any particular advantages and disadvantages)?
It is important to keep in mind that an application for an APA under the Act on Advance Pricing Arrangements in International Transactions (2009:1289) may not cover simple matters or minor transactions. Whether the transaction will be considered minor is assessed based on the applicant’s circumstances.
An advantage is that an applicant may request to have a meeting with the Tax Agency before filing an application in order to discuss, among other things, the conditions for a potential APA.
Review and adjustments
Review and audit
What rules, standards and procedures govern the tax authorities’ review of companies’ compliance with transfer pricing rules? Where does the burden of proof lie in terms of compliance?
There are no separate rules, standards and procedures specifically governing the tax authorities’ review of companies’ compliance with transfer pricing. Instead, the Tax Procedures Act (2011:1244) applies to all tax audits. Only the Tax Agency may decide on an audit.
Whoever files the tax return has the burden of proof when it comes to statements made and information given in the tax return. However, the Tax Agency has the burden of proof in establishing that the requirements as stated in the Income Tax Act for a transfer pricing adjustment are fulfilled.
Do any rules or procedures govern the conduct of transfer pricing audits by the tax authorities?
There are no separate rules, standards and procedures specifically governing the tax authorities’ review of companies’ compliance with transfer pricing. Instead, the Tax Procedures Act (2011:1244) applies to all tax audits.
Additionally, the Tax Agency is an administrative authority and is as such required to adhere to the Administrative Procedure Act (1986:223), which includes rules on procedure when it comes to decision making by administrative authorities. As of July 1 2018 a new Administrative Procedure Act (2017:900) will be enacted.
What penalties may be imposed for non-compliance with transfer pricing rules?
In general, tax penalties are levied at a 40% rate on the tax that the Tax Agency deems would have been due. There are no separate penalties concerning non-compliance with the transfer pricing rules.
What rules and restrictions govern transfer pricing adjustments by the tax authorities?
The Tax Procedures Act (2011:1244) applies to all tax audits.
As a rule, the Tax Agency may reassess its decision within:
- two years following the end of the relevant income tax year when the reassessment decision is negative for the taxpayer; or
- six years following the end of the relevant income tax year when the reassessment decision is negative for the taxpayer as a result of the taxpayer providing incorrect information or failing to provide information and the incorrect information or lack of correct information resulted in an incorrect tax decision.
How can parties challenge adjustment decisions by the tax authorities?
A party can file an application for reassessment no later than the end of the sixth year following the relevant income tax year.
A party can generally appeal a decision made by the Tax Agency to the Swedish administrative courts. The appeals procedure is usually a written procedure.
Mutual agreement procedures
What mutual agreement procedures are available to avoid double taxation arising from transfer pricing adjustments? What rules and restrictions apply?
Mutual agreement procedures are available only to the extent that a double taxation treaty applies to the relevant transaction or taxable event. If this is the case, the company in question may apply for a mutual agreement procedure between Sweden and the other country with the competent authority in its country. In Sweden, the competent authority is the Tax Agency.
What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?
There are several regulations enacted in Sweden to combat tax avoidance, such as the Act against Tax Evasion (1995:575) and the Act against Tax Evasion Crimes (1971:69).
There are also provisions in the Income Tax Act, such as the arm’s-length principle or the controlled foreign company rules.
Sweden also actively participates in the base erosion and profit shifting (BEPS) project (the Organisation for Economic Cooperation and Development (OECD)/G20 Base Erosion Profit Shifting Project) and is a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS.
To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?
Sweden already has legislation that fulfils many of the actions set up under the OECD BEPS Action Plan. However, there are some areas in which Sweden lacks legislation proposed by the BEPS Action Plan; in other areas, it is unclear whether Sweden’s legislation corresponds with the proposed actions. Such matters are under review with the Ministry of Finance.
Is there a legal distinction between aggressive tax planning and tax avoidance?
The term ‘aggressive tax planning’ is not legally defined in Swedish legislation. Some – but not all – transactions that are considered aggressive tax planning may be dealt with under the Swedish anti-avoidance provisions and principles.
What penalties are imposed for non-compliance with anti-avoidance provisions?
Both administrative and criminal penalties may be available depending on the character of the tax-evading measure. The administrative penalties or measures entail tax penalties and supplementary taxation, whereas the criminal penalties may entail prison and fines.