Transfer Pricing 2021 Comparisons

Last Updated April 09, 2021

Contributed By Baker McKenzie

Law and Practice

Authors



Baker McKenzie has been helping multinational companies to navigate tax laws and dispute resolution techniques for over five decades. With more than 1,000 tax professionals collaborating across 45 countries, the firm can design and implement tax structures that consider all variables in jurisdictions relevant to its clients' operations. Baker McKenzie's tax litigators have represented many of the world's largest corporations in transfer pricing disputes. The Stockholm Tax Practice consists of four team members working with tax issues that involve Swedish and international tax law, focusing on income and VAT-related issues, cross-border restructurings, transactional tax advice, initial public offerings, company acquisitions and joint ventures. It also represents clients in tax litigation and advises on tax compliance matters. The team has represented clients in a number of transfer pricing disputes and assisted with the drafting of transfer pricing policies and benchmark studies.

The Swedish arm's-length principle, referred to as the "adjustment rule", is stated in Chapter 14 Sections 19–20 of the Swedish Income Tax Act (SITA). In essence, the provision states that adjustment is applicable if the taxable result of a company decreases due to the terms of a contract that deviate from what would have been agreed between independent parties, and if the following apply:

  • the counterparty receiving the increased profit is not taxed in Sweden;
  • here is probable reason to assume that the parties are economically associated; and
  • the terms of the contract were not agreed for reasons other than association.

The full burden of proof regarding a decrease in income due to deviating terms of a contract lies with the Swedish Tax Agency (STA). Once the STA has shown that there is an economic association between the parties and that the incorrect pricing is leading to a decrease in income, it is up to the taxpayer to show that the terms of the contract were agreed for reasons other than economic association.

Documentation requirements and country-by-country reporting have been incorporated in Chapter 33 a of the Tax Procedural Act (TPA).

The STA adheres to the OECD Transfer Pricing Guidelines (TPG) and applies a general arm's-length standard.

The "adjustment rule" was introduced in the Swedish Municipal Tax Act in 1927. Since then, there have been various legislative amendments. Under the 1927 wording, in order for an adjustment to be made, a company's results from business activity had to be "considerably" lower compared to the 1965 wording, where the word "considerably" had been removed. This lowered the bar for which transactions could be challenged by the STA.

Another legislative change introduced in 1982 stated that it was sufficient for the STA to show that it was probable that the Swedish entity and the foreign enterprise were economically associated.

Transfer pricing rules apply to transactions between associated enterprises in an economic association, which is defined in Chapter 14 Section 20 of the ITA. An economic association is deemed to exist if an enterprise directly or indirectly participates in the management, control or capital of another enterprise, or the same persons directly or indirectly participate in the management, control or capital of both enterprises. The definition of an economic association deviates from the definition of a group of companies and affiliated entities in domestic law, as it does not have any holding requirements.

If the transaction leads to a decrease of income in the Swedish entity and the counterparty receiving the increased profits is not taxed in Sweden, it has to be shown that the conditions of the transaction were not agreed for reasons other than economic association.

There is little guidance from Swedish case law regarding the choice of any specific transfer pricing method. The administrative courts of appeal (courts of second tier) have indicated on several occasions that the comparable uncontrolled price (CUP) method can be applied to value operations when an external share acquisition is followed by an intragroup business transfer.

According to the STA, all of the methods accepted under the TPG (CUP, resale price, cost plus, profit split and transactional net margin) have strengths and weaknesses, and the most appropriate method must be determined on a case-by-case basis.

The STA guidance states that the use of methods other than the accepted OECD ones can be motivated by the pricing of controlled transactions.

According to the TPG, which are cited in the official guidance from the STA, the traditional transaction-based methods should be selected before the transaction-based profit methods. If more than one method is applicable, the CUP method should have precedence.

The STA does not require the use of ranges or statistical measures. The arm's-length price can be expressed as a fixed price, a margin or a range. Statistical measures may be used where appropriate. The STA's guidance on the arm's-length range follows paragraphs 3.55–3.66 in the TPG very closely.

Year-end adjustments and retroactive adjustments to achieve pricing at arm's length are accepted. The STA considers that comparability adjustments should be used with caution, as overly extensive adjustments would mean that the comparability of the transaction at hand might not be sufficient.

There are no specific rules in Swedish legislation regarding the transfer pricing of intangibles. The STA refers to Chapter VI and functional analysis in Chapter I of the TPG in questions regarding intangibles in its guidance. The adjustment of income is made under the general "adjustment rule" in Chapter 14 Sections 19–20 of the SITA described in 1.1 Statutes and Regulations. However, the central aspects relating to intangibles in transfer pricing, such as ownership, intercompany agreements, arm's-length licence fees and royalties, have been subject to a lot of scrutiny from the STA and the courts. The STA's view that the arm's-length price for the transfer of intangibles should account for the actual tax impact, including depreciation benefits, has been confirmed by the administrative courts of appeal.

The STA further considers that the negotiating position of both parties should affect where the price ends up in the range between the highest and lowest value. If the seller has a strong bargaining position and can continue to use the asset in a profitable business, they have no reason to substantially reduce the price. In such situations an arm's-length price would probably not end up at the lowest value. In several court cases, the STA has successfully argued, contrary to existing intragroup agreements, that the right to yield from intangibles should be allocated to an affiliated entity other than the legal owner of intangibles.

A trend observed in recent years is the STA invoking a transfer of intangibles if control of intangibles has changed as a consequence of a third-party acquisition of a company, providing support for an adjustment of income as if the intangibles were divested as a result of the acquisition of shares in the entity that is the legal owner of the intangibles.   

The STA adheres to Section D, Chapter VI of the TPG and specifically refers to the additional OECD guidance on hard-to-value intangibles that was published in 2018. There is no legal precedent of a decision regarding hard-to-value intangibles being appealed to the Swedish courts. However, it can be argued that several court cases in recent years have dealt with hard-to-value intangibles without invoking guidance from Section D, Chapter VI of the TPG.

Cost sharing and cost contribution agreements (CCAs) are recognised in Sweden. The STA does not hold a specific position regarding CCAs and refers to the guidance in Chapter VIII of the TPG.

Each Swedish entity is regarded as an individual taxpayer and each fiscal year as a separate period. Transfer pricing adjustments made during the fiscal year are reflected in the taxable income reported in the corporate income tax return. An entity intending to make an affirmative transfer pricing adjustment may request a reassessment of its taxable income within six years after the end of the fiscal year subject to adjustment. 

Sweden participates in administrative co-operation in direct taxation between the competent authorities of the EU member states (Council Directive 2011/16/EU). The extent of the co-operation covers spontaneous exchange of information, exchange of information upon request, automatic exchange of information on country-by-country reports, advance cross-border rulings, advance pricing arrangements, tax planning cross-border arrangements as well as other forms of administrative co-operation.

As a rule, only information on taxes covered by the tax treaty may be requested according to the tax treaty provisions. Sweden has entered into double tax treaties with 84 countries.

Simultaneous tax audits covering several jurisdictions are infrequently used. However, the method was described in a report from the STA in 2002 as the "method of investigation of choice for the future" and there is a strong recommendation to increase the number of simultaneous tax audits each year.

On 1 January 2010, an advance pricing agreement (APA) procedure became available when the Swedish APA Act entered into force.

The STA administrates the APA programme. 

It is not possible to receive a unilateral APA in Sweden. Instead, the APA requires a mutual agreement between affected countries. The APA is co-ordinated with a mutual agreement procedure (MAP) with affected jurisdictions. Most Swedish double taxation treaties contain a MAP provision in accordance with Article 25 paragraph 5 of the OECD Model Tax Treaty.

Although the "adjustment rule" merely refers to transactions with affiliated companies abroad, the APA Act is applicable to profit allocation between headquarters and branch offices as well.

There are five limits on which transactions are eligible for an APA. Firstly, an application may not concern a matter of a simple nature or a minor transaction. A simple matter or minor transaction means that the meaning of the arm's-length principle is specified. Minor transactions are assessed in the context of the relevant taxpayer. Secondly, transactions that are eligible for an APA have to be independent from transactions that are not included in the application. The third and fourth requirements are that the taxpayer must give the information that is required for a MAP and its contents can be confirmed with the jurisdictions affected by the MAP. Lastly, the selected transfer pricing method, after adjustments, should be deemed to result in an arm's-length price.

Filing an APA is voluntary, and the taxpayer and STA should have a discussion on how to co-ordinate the review, evaluation and negotiations.

The user fee for a taxpayer seeking an APA for the first time is SEK150,000 per country. The fee to renew an APA is SEK100,000 and the fee to renew an APA with modifications is SEK125,000.

An APA application will be given for a period of between three and five years, unless special circumstances apply.

A retroactive effect of an APA can be considered if the taxpayer requests it and it is necessary in the individual case. However, the time span for a retroactive APA is not stated in Swedish law.

There are no specific transfer pricing penalties in Sweden. If the taxpayer submits insufficient information to the STA, a discretionary assessment will be made. A discretionary assessment must be based on what is reasonable and fair in light of what has been established during the STA's investigation. Transactions that are deemed to have been made solely for the purpose of avoiding tax may be disqualified by the STA. If a discretionary assessment is issued, in addition to the actual tax due, a tax surcharge will be levied, varying from 2% to 40% of the tax due after the reassessment. Surcharges apply to adjustment of tax losses carried forward and are calculated as 2–40% of ¼ of the adjusted amount. Surcharges may not apply in cases where the taxpayer has a reasonable excuse, there has been an obvious error, the taxpayer has voluntarily corrected an error or the amount of tax is insignificant.

The risk of tax surcharges can be mitigated by submitting complementary information disclosing the uncertain tax position as an appendix to the corporate tax return. The STA issued an official statement (dnr 202 251680-18/111) on 3 December 2018 regarding the importance of a company's transfer pricing documentation when deciding on tax surcharges. Accordingly, if the STA finds that adjustments should be made to a company's previously reported income and, thus, that the taxpayer has submitted erroneous information, the size of the tax surcharge to be imposed depends on:

  • whether the transfer pricing documentation was submitted along with the tax return;
  • if the methods and margins described in the documentation are applied on the controlled transactions reported in the tax return; and
  • if the transfer pricing issue was difficult to assess.

In this regard, it should be noted that there is no statutory requirement for the taxpayer to submit transfer pricing documentation together with the tax return.

A taxpayer is required to prepare all of the files and reports contemplated by the TPG. Transfer pricing documentation is divided into two parts and the legislation follows the OECD's recommendations. The first part includes a master file with information regarding the multinational group. The second part includes a local file, which serves as a complement to the master file and includes information about the specific local entity in question and detailed information regarding the cross-border transactions.

Sweden implemented regulations regarding country-by-country reporting (CbCR) based on the OECD's recommended template on 1 April 2017. According to Chapter 33 a of the TPA, a Swedish parent company of a multinational group must submit a country-by-country (CbC) report to the STA, unless exempt by law. The Swedish CbC report rules apply to financial years starting after 31 March 2017. The legislation includes an obligation for all parent companies of Swedish multinational groups with at least SEK7 billion in group revenues during the preceding fiscal year, or EUR750 million for multinationals with a foreign parent company, to submit a CbC report to the STA. CbC reports should contain information such as business income, earnings before interest and taxes (EBIT), paid and accumulated income tax, number of employees, share capital, and retained earnings and tangible assets for each jurisdiction in which the group conducts business.

A Swedish company that is not a parent company may be obliged to submit a CbC report in three situations:

  • if the parent company of the group is not obliged to submit CbC reports in its country of residence;
  • if the country of residence does not have a valid agreement with Sweden regarding the automatic exchange of CbC reports; and
  • if the STA has reported to the entity that there are systemic flaws in the parent company's country of tax residence.

If the Swedish company is required to file a CbC report, the filing must be made no later than 12 months after the end of the financial year for which the reporting is done.

The STA adheres to the OECD TPG. The relevance of the TPG in relation to the interpretation of the Swedish arm's-length principle has been upheld by the Supreme Administrative Court (SAC) on several occasions. The court stated that guidance regarding the application of the Swedish arm's-length principle can be found in the commentary to the OECD Model Tax Convention and, specifically, the TPG.

According to the BEPS Action 14 Peer Review of Sweden from 2020, out of Sweden's 84 tax treaties, 58 contain a provision equivalent to Article 9(2) of the OECD Model Tax Convention requiring their competent authorities to make a correlative adjustment in case a transfer pricing adjustment is made by the treaty partner. Furthermore, 23 treaties do not include a provision equivalent to, or based on, Article 9(2) of the OECD Model Tax Convention. For the remaining three treaties the following specification can be made:

  • one treaty contains a provision that is based on Article 9(2) of the OECD Model Tax Convention, but which does not allow competent authorities to consult each other where necessary and is therefore considered not to be the equivalent thereof;
  • one treaty contains a provision that is based on Article 9(2) of the OECD Model Tax Convention, but whereby a corresponding adjustment is only possible through consultations between the competent authorities and is therefore considered not to be the equivalent thereof; and
  • one treaty contains a provision that is based on Article 9(2) of the OECD Model Tax Convention, but which from a material perspective does not incorporate several elements of Article 9(2), such as the possibility to unilaterally grant a corresponding adjustment and is therefore considered not to be the equivalent thereof. 

The STA and the Swedish courts follow the arm's-length principle and the TPG regarding the interpretation of the arm's-length principle very closely.

In Swedish law, we have not observed any significant deviation from the TPG on the interpretation of the arm's-length principle. However, one could discuss whether the doctrine developed by the European Court of Justice (ECJ) could have an impact on the application of the arm's-length principle in Sweden. The ECJ has ruled in several cases that when taxpayers are confronted with transfer pricing corrections that create a distinction between domestic and cross-border situations, they should be allowed to provide commercial reasons to justify their non-arm's-length price.

The changes introduced by BEPS Actions 8–10 and 13 have been implemented in Swedish transfer pricing legislation.

It is difficult to state to what extent dealings with the STA have been affected by the BEPS project or other factors, but the general trend with the STA has been to scrutinise transactions involving intellectual property (IP) and other intangible assets more closely, particularly in transactions where intangibles are transferred to foreign group entities. The STA has become more sophisticated in its understanding of IP valuations and the value-creating functions in a group. In recent years, particularly in terms of group restructurings and the transfer of IP, the STA's focus on understanding restructurings, focusing on how these restructuring affects the functional analysis, has increased. The STA has performed more OECD and BEPS-aligned analyses rather than only focusing on internal Swedish legislation.

In addition, there are more discussions with taxpayers around profit split mechanisms and a move away from using cost plus mechanisms for sales-related functions, particularly in situations where the STA deems that the taxpayer is a driving force behind the value creation.

Case law from the SAC dating back to the early 1990s has allowed Swedish entities to cover the losses and expenses of foreign affiliates by deeming that the contribution made to those affiliates was a tax-deductible cost for the Swedish entity. This precedent has not been overruled or ruled incompatible with the arm's-length principle. However, the STA deems that deductions for marketing grants or similar aid to foreign affiliates can only be made if the grant or aid together with other conditions for the transactions between the parties results in an arm's-length result.

Since the UN Practical Manual on Transfer Pricing addresses developing countries and there is a corresponding article in the OECD Model Tax Convention on Income and Capital Act 9, Sweden largely refers to the OECD.

Sweden does not have any transfer pricing safe harbour rules.

There are no specific rules governing savings that arise from operating in Sweden.

Sweden does not have any notable unique rules or practices applicable in the transfer pricing context. Transactions with intangibles have been subject to more scrutiny compared to other controlled transactions.

There has been concern regarding the STA and the Swedish Customs Authority valuing the same transactions differently. Swedish Customs interpret the conclusion in the Hamamatsu case (C-529/16) such that if a transfer price has been subject to retroactive adjustments, it cannot be used as the basis for a customs valuation. A retroactive adjustment can therefore lead to a discrepancy between the transfer price and the declared custom value of imported goods.

Customs authorities require that a valuation method other than the transaction value method is used. If inaccuracies in the customs value are discovered, there is a risk of customs penalties. Normally, if incorrect charges have been paid, a formal reassessment of the customs taxation decision must be applied for. This is the case if incorrect information concerning the value of the goods or some other item has led Swedish Customs to charge too low a duty.

Voluntarily disclosing upwards adjustments would, in general, be the only way to reduce the risk of penalties. This is, however, not possible if the corrections are due to transfer pricing adjustments, since these adjustments are made due to circumstances that were not known at the time of the import.

Commencement of an Audit

All submitted tax returns undergo certain basic controls before they are accepted. The STA may decide to conduct an audit based on information provided in the tax return, based on information discovered in other audits or as a routine procedure. A decision to initiate a tax audit must be issued in writing and must include information revealing the scope of the audit, which fiscal periods are covered by the audit and the possibility of exempting certain types of documents from the audit. The taxpayer should also be informed of their rights from the outset. The decision to conduct an audit cannot be appealed. Under the STA's internal guidelines and the TPA, a tax audit should be carried out in a spirit of co-operation and in a good atmosphere, and in such a way that the business of the taxpayer is not unnecessarily hindered.

Audit Memorandum

An audit memorandum released by the auditors will conclude the audit. After the audit memorandum has been finalised and sent to the taxpayer, the taxpayer will again be given the opportunity to respond. Generally, the taxpayer has up to one month to submit its statement, which should include a critical analysis of the conclusions and estimated tax assessments, if any, proposed in the memorandum. The taxpayer has several opportunities to respond to the STA's view and settle the differences in opinion during an ongoing audit. However, the possibility of striking a deal with the STA is not available in Sweden.

Based on the memorandum and the responses provided by the taxpayer, the STA will decide on possible tax reassessments. If the decision on reassessment is made within two years after the fiscal year subject to audit, the decision will be in the form of a review of the tax decision for the fiscal year in question. For example, tax decisions regarding fiscal year 2020 can be reassessed during 2021–2022 even though the taxpayer has not submitted erroneous information to the STA. After that time, the STA will have the full burden of proof to show that the taxpayer has submitted erroneous information in order to make a reassessment. The statute of limitations is six years.

Appeal

If the STA reassesses a decision, the taxpayer will have the opportunity either to request a reassessment (ie, that the STA re-examines its decision) or to appeal the decision to the administrative courts (first tier). Should the STA change its decision, the appeal will be automatically dropped. Otherwise, the appeal is passed on to the administrative courts.

Both the taxpayer and the STA may initiate a reassessment of a tax assessment, which is either a result of an audit or a regular decision on taxation. The taxpayer must file its request for a reassessment within six years from the end of the calendar year in which the fiscal year ended. The STA may notify the taxpayer of a reassessment within two years from the end of the calendar year in which the fiscal year ended. If the taxpayer has provided incorrect information or failed to provide sufficient information in the tax return that has resulted in an incorrect assessment, a reassessment may be made within six years from the end of the calendar year in which the fiscal year ended.

If the STA finds that the appeal has not been submitted in due time, the appeal will be rejected. A separate appeal against the decision to reject an appeal may be filed with the administrative court.

Proceedings before the Court

The administrative courts in Sweden handle appeals of decisions rendered by government bodies and municipalities. There are no special tax courts, let alone transfer pricing courts. However, all administrative courts have departments, judges and law clerks which are specialised in appeals of decisions on tax. The appeal should be addressed to the administrative court that has jurisdiction over the place of the taxpayer's incorporation.

A decision of an administrative court in transfer pricing cases can be appealed to the administrative court of appeal (second tier) without any restrictions. Proceedings before the administrative court of appeal are very similar to proceedings before the administrative courts. The same legal remedies are available in both instances:

  • request an oral hearing;
  • request an interim judgment on a specific question (the court rules on whether the interim judgment can be appealed separately or in conjunction with the final decision on the merits);
  • request to stay the proceedings because a similar legal question is being litigated in another case; and
  • new evidence and legal arguments can be added at any point in the proceedings.

An appeal of a decision from the administrative court of appeal is admissible to the SAC (final instance) if the SAC deems that it is required to review the case to create new legal precedent. If the appeal is deemed inadmissible, the decision of the administrative court of appeal becomes the final decision. If the appeal is deemed admissible, the SAC may overrule the decision of the administrative court of appeal. Before the SAC, it is not possible to:

  • request an oral hearing;
  • request an interim judgment;
  • request to stay the proceedings because a similar legal question is being litigated in another case; or
  • introduce new evidence.

Respite from Taxes and Penalties

During appeals to the administrative courts, respite from tax penalties is granted by the STA upon application by the tax payer until the court reaches a decision in the case. Also, during the appeal to an administrative court of appeal, respite can be applied for with the STA but there is no longer any certainty in being granted respite with surcharges. A negative decision on respite can be appealed to the administrative courts. Cases regarding respite are priority cases and are generally ruled on within two to four months. The taxpayer can also request for a respite from taxes due according to the appealed decision, but this respite from taxes is not granted automatically due to the appeal.

Interest is calculated on taxes and penalties subject to respite. The interest is calculated on a daily basis with an interest rate of 1.25% on the deficit on the tax account compared to the amount of penalties due. The same interest rate has been applicable since 1 January 2017. In practice, this implies that the balance available on the tax account each day is compared with the total amount of penalties due as per that date and the interest is calculated on the difference between these amounts. The interest amount is adjusted by the STA on a monthly basis. Due to this complicated procedure for calculating interest, which hinges on the daily balance on the tax account, it is not possible to calculate the exact interest due today without reviewing the extracts from a taxpayers' tax account starting from the STA's decision and until the review date.

MAP and Court Proceedings

Sweden allows for parallel MAP and court proceedings. Initiating a MAP with the Swedish competent authority (CA) does not affect court proceedings. The Swedish CA is not bound by the court's decision and, vice versa, the court is not obliged to take any action due to a pending MAP. However, the availability of parallel proceedings is affected by the other country's position on whether court proceedings are seen as an obstacle to MAPs.

Surcharges in Sweden are reduced in proportion to the allocation of taxation rights resolved in the MAP settlement. Basically, if the compromise reached in the MAP results in a 50/50 split, the surcharges will be reduced by half because the erroneous reporting pertaining to income affecting Sweden, which is the basis for calculating the penalty, will be reduced by half.

However, the CA does not assess whether the STA had sound reasons to levy surcharges. This assessment is reserved for the courts. In addition, respite regarding surcharges that are granted during the appeal procedures in the administrative court is not available during a MAP. Therefore, when there are surcharges involved, it is beneficial to appeal the STA's decision to the court in order to obtain respite from the surcharges and the court's assessment of the legal basis for the surcharge.

There are some judicial precedents from the SAC on transfer pricing. Even though the number of transfer pricing audits and court cases has increased considerably in recent years, only a few appeals are deemed admissible to the SAC, since this requires that the appeal may create new legal precedent.

The most comprehensive precedent is the Shell case (RÅ 1991 ref. 107), and it is still relevant even though transfer pricing has developed since the case was announced.

The SAC ruling in the Shell case (RÅ 1991 ref. 107) confirmed that relevant guidance regarding the interpretation of the Swedish arm's-length principle could be found in the TPG, even though OECD materials are not part of the Swedish hierarchy of sources of law. However, the court only stated that guidance could be sought in the TPG in relevant parts, while also stating that the TPG are not in any way binding. The court also ruled that overpricing could be compensated by under-pricing another year and that an overall assessment of transactions from companies is therefore required. The court elected to apply the CUP method, since there was a lack of a basis to use other methods. Another important judicial precedent from the case is that the court established that the arm's-length principle is the fundamental principle in adjustments, which needs to be defined based on actual – not hypothetical – conditions.

The judicial precedent in the Volvo case (RÅ 2004 ref. 13) constitutes that the Swedish arm's-length rule is a special provision (lex specialis) applicable to international conditions and that it takes precedence over general rules when calculating the results of a business.

The key takeaway from the most recent SAC ruling on transfer pricing in the Absolut case (HFD 2019 not 20) is that, under certain conditions in a case-by-case assessment, the full range of results in a benchmarking study could be applied and a multiple-year analysis of the tested party data could be used to support an arm's-length result.

By implementation of the EU Anti-Tax Avoidance Directive (Council Directive (EU) 2016/1164), certain types of outbound payments in uncontrolled transactions have been restricted under the so-called anti-hybrid rules. Between unrelated entities, the anti-hybrid rules find application if the company or a related entity receives a tax benefit as a result of the transaction. Anti-hybrid rules prevent arrangements that exploit the differences in the tax treatment of an instrument or entity under the tax laws of two or more territories. They do this by disallowing tax deductions for the expense pertaining to the payment that is made to gain a tax benefit from a mismatch outcome. The Swedish rules specifically target hybrid financial instruments, imported mismatches, double deductions and other transactions that lead to a deduction-non-inclusion outcome.

Since 1 January 2021, interest expenses on loans to entities based in jurisdictions listed in the EU list of non-co-operative jurisdictions for tax purposes are not deductible. 

General anti-avoidance regulation allows the STA to disregard the transaction for tax purposes. This is applicable to transactions where the predominant reason behind the transaction is to obtain a substantial tax benefit and a tax assessment based on the transaction would be in conflict with the purpose of the tax legislation.

Both anti-hybrid rules, limitations on deductibility of interest to certain foreign entities and general anti-avoidance regulation apply to controlled and uncontrolled transactions. Controlled transactions involving interest payments are restricted further. The deductibility of interest expenses on intragroup loans from affiliated entities that are residents of a state with which Sweden has a tax treaty not limited to certain income, or that are subject to a corporate tax of at least 10%, is denied if the underlying purpose of the loan exclusively or almost exclusively is to obtain a substantial tax benefit for the group.

Sweden does not have any specific rules on other countries' legal restrictions.

As a main rule, decisions on final tax rendered by the STA may be requested by the public. Information on the application and outcome of APAs and transfer pricing audit outcomes is not publicly available. If a taxpayer appeals the outcome of a transfer pricing audit to the administrative courts, the appeal and the underlying decision may be made public to anyone who requests access if it can be assumed that the taxpayer appealing the decision will not suffer a loss if the information is disclosed to the public. In practice, the strict confidentiality regarding audit outcomes at the level of the STA becomes more relaxed once the audit decision has been appealed to the administrative courts.

The STA can invoke data and factual circumstances that may have been discovered in another taxpayer's tax filings or audits (so-called secret comparables) when making an adjustment. This practice has not been observed specifically in decisions on transfer pricing, but it is frequently applied in many other types of decision rendered by the STA.

The STA considers that the "OECD Guidance on the transfer pricing implications of the COVID-19 pandemic" should be referred to for guidance on how companies should manage issues related to transfer pricing due to the pandemic.

The Swedish government introduced several measures that affect taxation as part of COVID-19 relief measures. These include:

  • reorientation support (ie, financial support for the company's fixed costs, such as rent, leasing and interest, etc, excluding personnel costs);
  • short-time work allowance (ie, financial support whereby the employer's costs for personnel can be reduced by half at the same time as the employees receive 90% of their regular salary/wages);
  • temporary reduction of an employer's social security contributions;
  • temporary respite from the payment of taxes; and
  • rent rebates in support of tenants operating in the hospitality, entertainment and retail sectors, as well as certain other activities.

The pandemic has not had an effect on ongoing audits.

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Law and Practice in Sweden

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Baker McKenzie has been helping multinational companies to navigate tax laws and dispute resolution techniques for over five decades. With more than 1,000 tax professionals collaborating across 45 countries, the firm can design and implement tax structures that consider all variables in jurisdictions relevant to its clients' operations. Baker McKenzie's tax litigators have represented many of the world's largest corporations in transfer pricing disputes. The Stockholm Tax Practice consists of four team members working with tax issues that involve Swedish and international tax law, focusing on income and VAT-related issues, cross-border restructurings, transactional tax advice, initial public offerings, company acquisitions and joint ventures. It also represents clients in tax litigation and advises on tax compliance matters. The team has represented clients in a number of transfer pricing disputes and assisted with the drafting of transfer pricing policies and benchmark studies.