Tax controversies can arise through different ways, though they usually arise through the Swedish Tax Agency (STA) challenging the taxpayer’s tax self-assessment, either via a tax assessment or reassessment. It is understood that the number of tax controversies arising through audits have declined in recent years following the decreased number of audits conducted by the STA. However, according to the STA this is now about to change.

The most typical tax disputes mainly concern income taxes, relating to individuals or legal persons, and VAT.

For individuals, the main focus during recent years has concerned the classification of income from legal entities as either investment income or employment income. This is in large part due to the tax rate for investment income being significantly lower than the tax rate for employment income (in general 30% for investment income compared to circa 53% for employment income). This has, for example, involved disputes concerning carried interest, dividends from closely held companies, and income from foreign trusts and foundations. Tax disputes concerning carried interest have received particular focus in recent years, where the STA has argued that carried interest should in its entirety be classified as employment income. This has led to a large number of disputes, often concerning values of several hundred million Swedish Krona.

For legal persons (mainly companies limited by shares), tax controversy can arise from varying types of tax matters. In general, the focus in recent years has centred on transfer pricing, interest deductibility, cross-border restructurings, permanent establishments, and different VAT matters. An influx of transfer pricing disputes has been seen in recent years, and it is expected that the number of controversies regarding transfer pricing cases (especially concerning IP transfers) will increase in the coming years. The values involved vary but can in many cases concern several billion SEK.

The STA has stated that it will increase its focus on investigating income from foreign trusts and foundations in the coming years, which will likely entail further tax controversy in this area.

There are many different aspects to consider when trying to avoid tax controversy. Some of the most important aspects are summarised below.

General Tax Compliance

Tax controversy can be avoided by taxpayers having a good understanding of the tax matters that are relevant to them. For legal persons, this includes a well-functioning tax compliance function with good insight into the tax position of the taxpayer and an understanding of the tax matters that are relevant each year. Assistance by external tax professionals in preparing tax returns and advising on tax matters is also highly relevant in avoiding tax controversy. Having a good relationship with the STA and submitting tax returns and payments on time is also important to avoid unnecessary investigations by the STA.

ADR Mechanisms

Another way to avoid controversy is to use ADR or ADR-similar mechanisms that result in a formally or informally binding decision on which the taxpayer can rely when preparing its tax return. Such mechanisms include requesting an advance ruling by the Board for Advance Rulings, initiating an APA on transfer pricing matters and submitting a question to the STA via correspondence to receive the STA’s view on a particular tax matter.

Co-Operation and Argumentation in Investigations

If the STA has initiated an investigation (an audit), it is important to co-operate with the STA but also make sure to know the tax procedural rules. If the taxpayer has received a proposal for a decision according to which tax is levied, the taxpayer should submit a statement before it becomes final. It is important to utilise this statement in providing both legal and factual arguments to try to change the STA’s mind as early in the process as possible. Doing so will in many cases decrease the risk of litigation or improve the chances of winning litigation in court.

The BEPS recommendations and the EU’s recent measures to combat tax avoidance have entailed changes to the Swedish rules concerning dispute resolution and amendments to certain double taxation treaties (DTTs). However, based on statistics regarding the number of tax disputes in the most recent years, there is little evidence that these measures have affected the number of tax controversies in Sweden. The increased exchange of information between countries and the increased reporting requirements may, however, lead to an increased number of tax controversies concerning international tax matters in the coming years.

If the STA makes a tax assessment that obligates the taxpayer to pay additional tax, the tax must be paid on the due date regardless of whether a request for reassessment or an appeal has been made. If such a request or appeal is submitted, a request for a deferment of the tax payment can be made if it is uncertain how much tax will finally be due. However, the STA may require security from the taxpayer to ensure payment of the tax. If the taxpayer does not pay the tax on time, a fine can be levied and interest is charged on the tax arrears.

A tax audit in Sweden is separated from different investigations in that special rules apply, which inter alia allow the STA to review the taxpayer’s financial records. The STA can initiate a tax audit on practically any company registered or incorporated in Sweden, that is, anyone liable to keep accounts (including individuals). The procedural rules differ between tax audits and so-called desk investigations, which are significantly less intrusive. Tax audits may be triggered by different factors but are mainly carried out on companies in high-risk sectors and particularly large companies, or otherwise based on random selection. These categories are not formally specified or defined in law but rather determined and produced by the analysts at the STA.

A tax audit can be initiated at any time, even before the tax return has been submitted. There is no formal time limit within which it must be completed, but it must not take longer than necessary. The STA is responsible for making sure that the audit is as short as possible and should inform the audited person how long the audit is expected to last. Most audits are completed within ten months. The statute of limitations period is not suspended or interrupted by an audit, but audits can be closed prematurely due to the fact that the statute of limitations for a decision has passed.

The main rule is that an audit is initially conducted on the taxpayer’s premises unless it can be conducted at another location without difficulties. After the STA has gathered the information at site, the actual investigation is normally done at the STA’s premises. The audited documents are usually provided electronically but can also be provided in print. It is all based on what the taxpayer and the auditor agree on.

An audit can be carried out with the purpose of controlling the taxpayer’s tax compliance in general, or regarding a particular tax or tax regime. The audit decision normally expresses this as investigating whether “the obligation to provide information” has been fulfilled (eg, making sure that the company has declared all its taxable income in a correct manner and that all income statements concerning employees, etc, are correct). The STA has recently focused on smaller audits that concern compliance within a particular part of the tax system, such as withholding tax or VAT.

The STA has increased its use of cross-border exchanges of information in its investigative processes. Tax control processes such as desk investigations have used information received from international tax authorities to a greater extent both in determining risk areas and as a basis during and before control processes. While there is no clear indication that this has led to more audits, assessment suggests that more material from foreign tax authorities is available for the STA compared to previous years.

As soon as the audit decision is communicated, the taxpayer should contact a tax lawyer with knowledge of audit procedure rules to ensure that the audit is performed in the correct way and that the company’s rights are respected. The tax lawyer can aid in making the necessary preparations prior to the audit, such as reviewing which documents should be made available, and which documents the taxpayer has a right to exclude.

It is generally recommended to appoint one person in the company as being responsible for the communication with the STA so that it is handled correctly from the beginning, and that questions be made in writing so that all answers are structured and non-conflicting.

When the STA makes a decision concerning a tax return, the taxpayer can either request reassessment by the STA or appeal to the administrative court directly. The administrative claim phase is therefore optional before initiating a judicial phase.

The STA cannot appeal its own decisions. However, within the STA there is a “public representative” who may appeal an STA decision on an alternative ground and also in favour of the taxpayer.

The STA will in most cases not change its opinion unless some obvious mistake has been made or the taxpayer has supplemented the matter with relevant information that prompts a different assessment. It is therefore common to appeal to initiate judicial proceedings directly if the matter concerns the interpretation of a legal provision. The STA must make a reassessment based on the appeal before handing the matter over to the court. If the decision is changed in full, no judicial proceedings will take place. Otherwise, the appeal is handed over to the court.

There is no formal deadline for the STA to decide an administrative claim (ie, a request for reassessment), but general administrative law requires that the matter be processed as quickly and cost effectively as possible. If a decision is not made within six months, the taxpayer can make a formal request for a decision to be made. The STA must then either decide or deny the request within four weeks. If such a request is denied, that decision can be appealed via judicial proceedings to force a decision.

A tax assessment decision can be appealed to the administrative court, which is the first instance for tax cases. An appeal must, as a main rule, be made within the sixth year after the end of the calendar year when the tax year ends, at the latest (the tax year can for legal persons differ from the calendar year). The appeal must be made in writing and include the taxpayer’s claims and grounds for such claims.

The appeal is filed to the STA. Regarding the procedure at the STA before the case is submitted to court, please see 3. Administrative Litigation.

Once an appeal has been made, the STA must assess whether the appeal has been made on time. After an appeal has been denied through the mandatory reassessment by the STA and submitted to court, the court will assess whether the appeal has been made to the correct administrative court and fulfils the legal requirements set out for an appeal. The proceedings in court are administrative, starting with the taxpayer being able to respond to the STA’s mandatory reassessment. The procedure will continue with the taxpayer and the STA arguing the case in writing. Tax litigation is a two-part process whereby the STA is a counterpart to the taxpayer.

As a main rule, the process is a written procedure, but the taxpayer can request that the procedure be supplemented by an oral hearing. Such an oral hearing can be used to hear testimonies or elaborate on a particular aspect of the case in a way that is not possible in a written procedure.

Once the written procedure has been concluded, the case is normally orally presented to the judges (some of whom are laymen, in the lowest instance) by a reporting clerk with a written proposal for a judgment.

The court is not bound by the parties’ arguments on how the law should be applied, but the court rarely diverges from the arguments put forth by the parties. However, the court is bound by the actual tax subject matter. A judgment is, as a main rule, delivered within four weeks of the oral hearing, if an oral hearing is held. Typically, the courts aim to issue a ruling within a year of receiving an appeal.

A tax case is an administrative proceeding and not a civil case and the procedural rules differ from those for criminal and civil cases. Documentary evidence is often used both by the STA in its decision and from the taxpayer’s side to strengthen the taxpayer’s case.

Witness evidence can be requested by both parties. However, usually the taxpayer requests that a witness be heard, and the STA then has the right to cross-examine. The STA seldom requests that a witness be heard. Nonetheless, the STA sometimes brings in the STA auditor to be heard, not as a witness but to strengthen its argumentation.

Swedish law allows the parties generally to bring forth new evidence at any stage of the process, if the evidence does not bring in a new factual tax subject matter to the case. However, new evidence cannot be presented in the Supreme Administrative Court unless it is warranted by exceptional circumstances. As a general rule, evidence should be presented without delay in the procedure, to avoid prolonging the procedure unnecessarily.

The main rule is that the STA has the burden of proof regarding the circumstances for an income, while the burden of proof rests on the taxpayer concerning circumstances for deductions. This stems from the principle that the burden of proof is placed on the party who can most easily prove a certain fact. Either party needs to make its claim “probable”.

The main rule above applies if the STA reassesses a tax assessment within two years of the end of the calendar year in which the tax year ended. If a reassessment is made later, the burden of proof is of a higher degree. The STA must during that period present evidence that it is “clear” that the taxpayer has presented incorrect information in its tax return and that this information has led to the wrongful initial tax assessment. This applies both for income and deductions, meaning that the taxpayer does not have the burden of proof regarding deductions. In practice, this type of stricter burden of proof is not always upheld by the STA or the courts.

For criminal tax proceedings, the burden of proof rests on the prosecutor to make it clear beyond reasonable doubt that the taxpayer, through intent or gross negligence, has committed a tax crime by submitting incorrect information in its tax return.

There is a variety of strategic options to consider in a tax litigation in Sweden. For example, the taxpayer should evaluate whether it is beneficial to request an oral hearing to invoke witnesses or present the case orally in such a way that it helps the court understand the taxpayer’s argument. If the case includes a tax penalty, which it frequently does, the taxpayer is entitled to an oral hearing. Presenting expert reports can also be considered to strengthen the taxpayer’s case on how a legal provision should be interpreted.

While it is not possible for the taxpayer and the STA to settle, it should be considered whether contact should be made with the STA before decision or litigation to discuss the factual issue and the evidence. Such contact may resolve opposing views and misunderstandings as well as save costs for the taxpayer.

In addition, it is possible for the taxpayer to make a secondary claim within the tax issue, requesting that the court determines the payable tax to be lower than the STA’s decision but higher than the taxpayer’s assessment. Secondary claims can be used to give the court a chance to effect a sort of compromise if both parties’ assessments are inadequate in the court’s view. The taxpayer must then consider whether proposing a secondary claim lowers the strength of the first claim. The taxpayer also has the right to raise its claimed amount during the proceedings in court if the actual subject matter does not change from a factual context – ie, if the claimant has been refused a deduction and realises the amount should have been higher.

The administrative courts also have an obligation to investigate that the case is as clear as its nature requires before ruling, which is a difference from the civil courts. The considerations include how much is needed to be explained, supported and argued by the taxpayer in comparison to what the court will investigate. The fulfilment of this obligation may vary between different situations and judges.

The tax levied on a taxpayer through a decision of the STA must, as a main rule, be paid regardless of whether the decision has been appealed or not. The taxpayer should therefore consider requesting a deferment of the tax payable. A new request for deferment must be made at the STA for each court instance.

Doctrine and guidelines play a vital role in judicial tax litigation. While references to academic books and articles are rare, preparatory works for statutes are often quoted by courts when interpreting legal provisions. International guidelines such as the commentary to the OECD model treaty and the OECD transfer pricing guidelines are often used by the courts in cases concerning double tax treaties and transfer pricing to interpret the law. The guidelines to the implementation of the Pillar 2 regime will likely play a more important role in the coming years as litigation concerning Pillar 2 increases.

Appeal to the Administrative Court of Appeal

If a taxpayer’s appeal to the administrative court is rejected, the ruling can be appealed to the administrative court of appeal, which is the second-highest domestic instance. Cases concerning taxation and tax penalties do not require leave to appeal in the administrative court of appeal. The principle of reformatio in peius applies here as well, meaning that the ruling cannot result in a worse outcome for the taxpayer if the taxpayer is the sole party appealing the ruling.

Appeal to the Supreme Administrative Court

The ruling from the administrative court of appeal can in turn be appealed to the Supreme Administrative Court. This requires leave to appeal, which is only granted where there is need for a precedent concerning the interpretation of a provision or if extraordinary reasons call for a leave to appeal. Leave to appeal to the Supreme Administrative Court is granted in 1–2% of the appeals submitted each year.

If leave to appeal is not granted by the Supreme Administrative Court, there is no further instance to which an appeal can be made. The taxpayer would then have to appeal to the European Court of Human Rights to receive a remedy where the taxpayer is of the opinion that its human rights have been violated.

Res judicata and facta supervenientia

If a certain subject matter has been ruled on and not appealed in time, the same subject matter can as a general rule no longer be reconsidered by the STA or appealed again, in accordance with the principle of res judicata. However, if new circumstances have arisen which did not exist when the res judicata ruling was issued, the same subject matter can nonetheless be tried by the STA or court again in accordance with the principle of facta supervenientia. Other exceptions are where the Supreme Administrative Court grants a “new trial” or, after the tax issue has become final, issues a judgment that differs from the previous judgment in question. In this case, the same tax issue can be re-examined no matter res judicata.

In general, a decision from the STA does not lead to res judicata and can be reassessed many times during the time limit of six years.

The process of appeal from an administrative claim to judicial litigation has been described in 4.1 Initiation of Judicial Tax Litigation. An appeal to the administrative court of appeal must generally be submitted by the taxpayer within two months of receiving the ruling from the administrative court. The procedure in the administrative court of appeal resembles that of the administrative court in that it is a written procedure with the possibility of requesting an oral hearing.

The composition of judges in the administrative court is normally one law-learned judge and three lay judges who do not have a legal background but are appointed by the public. In larger, complex tax cases another law-learned judge may be added to the composition. The purpose of the lay judges is to represent the people and give insight in the judicial procedure. The lay judges have equal authority as the ordinary judge to rule on the case, but they most often side with the ordinary judge. If they vote 2:2, the law-learned judge’s vote decides. However, a 2:2 vote regarding tax penalties always leads to a revocation of such penalties.

The administrative court of appeal normally consists of three law-learned judges in a tax case. In a tax case, the Supreme Administrative Court consists of five justices. Normally, a leave to appeal is decided by one or three justices.

Each court appoints its own judges in each specific case. Neither the taxpayer nor the STA can formally request a specific judge or a specific composition of judges. However, a judge is exchanged if there is a question of conflict of interest towards one of the parties or their representatives.

A decision from the STA to levy tax can as a main rule only be appealed via judicial litigation to an administrative court. The administrative court can in turn only decide for or against the taxpayer. It is not possible to request mediation, arbitration or similar ADR mechanisms. The taxpayer has no right, according to the tax procedural rules, to formally request a meeting with the STA regarding an investigation or audit. International ADR mechanisms such as MAP and APA are, however, possible. MAP and APA procedures are described in 6.6 Use of ADR in Transfer Pricing and Cases of Indirect Determination of Tax.

There is also the possibility of requesting an advance ruling from the Swedish Board for Advance Tax Rulings (Sw. Skatterättsnämnden). An advance ruling can be requested if there is a question regarding the tax consequences of taking an action in a particular situation. The question must concern interpretation of a legal provision regarding tax and the answer must not be clearly stated in legislation or case law. An advance ruling is binding for both the taxpayer and the STA.

Although there does not need to be a disputed matter to request an advance ruling, the questions submitted are often of a contentious nature and the STA in many cases disagrees with the taxpayer’s view on how the questions should be answered. Thus, the advance ruling procedure is similar to an ADR.

An advance ruling is submitted to the Board for Advance Tax Rulings, which reviews the application and initiates a new matter if the application is not immediately denied. A ruling is, as a rule, given within three months of the correspondence ending. The ruling can be appealed directly to the Supreme Administrative Court by either party. Leave to appeal is not required for advance rulings.

While there is no possibility of settling during a tax dispute, it is however possible, in general, to have some sort of agreement discussions during a MAP-procedure.

It is not possible to enter into an agreement with the STA via, eg, mediation or arbitration to reduce the tax assessment, the interest due or the tax penalties. However, a taxpayer can apply to the STA for an exemption of the interest due if there are exceptional reasons. An exemption is very rarely granted by the STA.

The advance ruling institute is a relatively effective way of receiving a binding ruling without the need for litigation in courts. The institute has, however, been criticised in recent years due to the number of rulings that have been rejected by the Supreme Administrative Court due to reasons such as the circumstances that the application is based on being unclear or not fully investigated. This has led to a significant decline in applications. An advance ruling is nonetheless often applied for in situations where a tax question does not have a clear answer, and the taxpayer does not want to risk having to spend years litigating the matter in court.

There is also the possibility of receiving a written answer from the STA in advance of handing in the tax return. Such an answer is binding on the STA towards the taxpayer asking. However, this possibility is not regulated in any procedural act, which may lead to other controversies regarding the interpretation.

An advance ruling can be requested regarding most types of taxes and does not need to concern a certain amount of money. The question, however, needs to be of importance to the taxpayer in relation to how the taxpayer will act in a coming situation. Therefore, a ruling cannot be requested for something that has already occurred. A ruling can also be requested if there is a need for a legal precedent concerning the question.

The answer provided by the Board for Advance Tax Rulings is strictly legal and only concerns the interpretation of the law based on the circumstances provided in the application. It is therefore not possible to receive a ruling based on equity (as is the case in the Swedish judicial system in general).

Advance Pricing Agreement (APA)

It is possible to enter into an Advance Pricing Agreement (APA) to receive a binding decision on the pricing of intra-group transactions. This requires that there is an existing double tax treaty between Sweden and the other state or states in question and the tax treaty or treaties allow for an APA to be concluded. Sweden only allows for bilateral and multilateral APA procedures.

A request for an APA is made to the Swedish competent authority (special department within the STA), which will negotiate the matter with the competent authorities of the other state or states. The proceedings will usually begin with an initial meeting with the taxpayer and the competent authority. Very often the procedure takes many years with written documents, written materials and many meetings. If the competent authorities can reach an agreement on the pricing, the taxpayer will receive a decision that is binding for a period of three to five years as a general rule.

While APA procedures are not concluded regularly in Sweden, they can be an effective way to mitigate the risk of the STA challenging the pricing of intra-group transactions at a later stage. The need of mitigating this risk is emphasised by the fact that substantial tax penalties very often are levied in cases where the STA disagrees with the taxpayer’s pricing of a transaction. It is also generally believed that the number of transfer pricing disputes will increase in Sweden in the coming years, and the number of APA procedures has already increased compared to previous years according to the competent authority.

Mutual Agreement Procedure (MAP)

If a taxpayer is subject to double taxation, there is also the possibility of applying for a MAP pursuant to an applicable DTT or, in case of double taxation between two EU states, through the EU Tax Disputes Directive. Dispute resolutions often start with judicial litigation in court under which a MAP is initiated: almost always, tax penalties are imposed by the STA that cannot be eliminated through the MAP, just reduced in accordance to the tax.

A MAP application is submitted to the Swedish competent authority, which negotiates the matter. The taxpayer is not a party in the negotiations, but it is generally recommended that the taxpayer co-operate closely with the STA so that all relevant information is brought forward in the proceedings.

While a MAP does not need to concern a transfer pricing issue, it is the most common type of matter for which a MAP is used in Sweden. The STA does not have to reach an agreement with the competent authority of the other state, but most MAPs in Sweden conclude with the double taxation being fully eliminated. A MAP can be an efficient solution to eliminate double taxation in transfer pricing cases but can also take several years without the competent authorities concluding an agreement.

Administrative Offences

If the STA assesses that the tax return of a taxpayer is incorrect and the taxpayer has provided incorrect, misleading or incomplete information, a tax penalty in an amount of 40% of the additional income tax (20% on VAT) is normally levied. The assessment of whether incorrect information has been provided is made only on objective grounds: no intent or negligence is needed. The tax penalty is an administrative penalty and is decided in the same decision as the STA’s reassessment. Tax penalties are, however, treated as a criminal punishment pursuant to the ECHR. This means that an individual cannot be prosecuted for a tax crime if that same person also has been levied tax penalties for the same incorrect information, pursuant to the principle of ne bis in idem.

There are other administrative offences that can result in fees and other charges due to late filings, non-compliance with the STA, etc. However, tax penalties are the most common and financially significant for taxpayers and thus the most frequently contested.

Criminal Offences

Providing incorrect information to the STA can also be a criminal offence. The relevant criterion for a criminal offence is the same as the criterion for a tax penalty to be levied – ie, that incorrect information (Sw. oriktig uppgift) has been provided. However, criminal offences also require either intent or gross negligence by the taxpayer. In general, criminal proceedings are initiated at the criminal courts by the Swedish Economic Crime Authority (AECA) or the Swedish Prosecution Authority. The STA also has its own department for criminal tax offences which investigates and reports to these two authorities.

Tax penalties are part of the reassessment decision by the STA and therefore part of the procedure when the reassessment decision is appealed. There is therefore no need for any suspensions regarding the administrative infringement. If the court finds that the STA’s decision was incorrect, the decision to levy tax penalties will be overruled since the amount of tax penalties due is based on a percentage of the tax that is levied in the reassessment.

In general, and in accordance with the principle of ne bis in idem, tax penalties cannot be imposed by the STA if there is already a notification or a preliminary investigation at the AECA regarding the same individual. However, this does not apply if the prosecutor has closed the investigation. If an indictment has been made, a tax penalty cannot be imposed by the STA. The tax penalty may instead be levied in the criminal proceedings.

There is no formal requirement for criminal litigation procedures to be suspended until the administrative court assesses whether the tax return is incorrect. However, the preparatory works express that it is preferable that the administrative tax issue is ruled on before the criminal court rules on the same tax issue. In the authors’ experience this rarely poses a problem, but there have been instances where the criminal ruling has been delivered beforehand.

The main rule is that tax penalties should be levied in connection with a decision to levy more tax if the taxpayer has provided incorrect information. Under certain circumstances the STA has the obligation to report the incorrect information to the AECA to assess whether a crime has been committed. The STA will not impose tax penalties during the AECA’s investigation until the AECA gives its clearance that indictment will not be made or the AECA takes over the case (this is because of the principle of ne bis in idem, as described in 7.1 Interaction of Tax Assessments With Tax Infringements). An administrative process can therefore evolve into a criminal case and approximately 50% of the cases at the AECA originated from the STA.

Criminal tax cases are decided by general courts (which rule on civil and criminal claims) instead of the administrative courts (which rule on appeals against the state, such as tax cases). The prosecutor indicts when the writ of summons is filed at the relevant district court in the first instance.

Since the stages of the tax administrative infringement process are the same as for the ordinary tax assessment process, this will not be described further.

It is not possible to receive a reduction of the tax penalties based on the willingness to pay the tax owed (except in some cases due to a tax return not being submitted). However, tax penalties can be reduced wholly or in part if it is considered inequitable to impose full tax penalties. This is the case if incorrect information has been submitted due to, eg, old age, a misjudgement of a rule or the significance of a circumstance, or if the tax penalty is deemed disproportionate to the taxpayer’s error.

A taxpayer cannot enter into an agreement with the STA or the Prosecution Authority to prevent or stop a criminal tax trial that has already started. A taxpayer can, however, under certain circumstances make a voluntary correction to avoid tax penalties and criminal prosecution. If no investigation into the tax matter has been initiated and the taxpayer has no reasonable grounds for believing that there is a risk for such investigation, the taxpayer can voluntarily file a correction to the STA stating that an error has been made previously and that tax should be paid. If a voluntary correction is made and accepted by the STA, no tax penalties can be levied and the taxpayer cannot be prosecuted.

The ruling of the district court can be appealed to a court of appeal in the second instance and finally to the Supreme Court in the third and last instance. This follows the normal procedure for criminal cases in Sweden.

The STA is known for applying a relatively strict policy on issuing tax penalties, meaning that penalties are often levied in situations where the STA has challenged the taxpayer’s view concerning transactions and operations pursuant to rules such as the GAAR, SAAR and transfer pricing rules. The STA’s practice of levying tax penalties on transfer pricing cases often leads to tax disputes in domestic courts which would not have occurred otherwise, since the double taxation often can be eliminated through a MAP.

Criminal cases concerning transactions and operations under the GAAR, SAAR and transfer pricing rules are, however, less frequent. Such rules are often applied in relation to companies and not individuals. However, representatives of companies may under certain circumstances be prosecuted and companies can be subject to corporate fines. To our knowledge, there have been no corporate fines on transfer pricing issues.       

If a double taxation situation occurs and the taxpayer is of the opinion that tax should not be levied in Sweden, it is most common to appeal to an administrative court rather than initiating a MAP immediately – especially if there are tax penalties imposed. However, a MAP is usually initiated if the taxpayer assesses that tax should be paid in Sweden and not the other state. Both a domestic appeal and a MAP procedure may nonetheless be initiated concurrently. Most Swedish DTTs require that a request for a MAP is submitted within three years from the decision leading to double taxation.

Sweden has ratified the MLI convention, with certain reservations being made. Since Sweden has a dualistic legal system as opposed to a monistic one, this means that conventions entered into with other states as a general rule need to be incorporated into domestic legislation to become applicable law. This means that changes or amendments to tax treaties need to be incorporated into Swedish law in order for the tax treaties to be changed in accordance with the provisions in the MLI. This has only been done with a few (approximately then) states, such as the tax treaty with the United Kingdom. Thus, the MLI has had little impact in Swedish tax dispute resolution in practice.

The EU Tax Disputes Directive has been implemented in Swedish legislation. In practice, the directive has not yet had a significant impact on tax dispute resolution in Sweden. There has been an increase in MAP applications, but to the best of the authors’ knowledge no arbitrations based on the EU Directive have taken place yet.

Swedish legislation has implemented a GAAR via the Tax Avoidance Act, through which a legal action should be disregarded if the following apply:

• the action is part of a procedure which results in a tax benefit;
• the benefit may be presumed to have been the main reason for the action; and
• taxation based on the action would be contrary to the principles of the relevant tax legislation.

The Tax Avoidance Act is applicable in cross-border situations and has been applied in certain cases with varying outcomes. Certain legislations or part thereof have also implemented a SAAR in regard to certain actions – eg, in relation to the interest deduction limitation rules and the rules concerning withholding tax on dividends. Many such rules are based on or influenced by EU directives and the disputes regarding the application of such rules have therefore often concerned interpretation of EU law.

As mentioned in 8.1 Mechanisms to Deal With Double Taxation, Swedish legislation requires the provisions of the MLI to be implemented into each specific tax treaty, which in most cases has not been done. The principal purpose test (PPT) and the amendment of the DTT preambles have therefore been of little importance so far. The fact that a GAAR already exists in domestic legislation through the Tax Avoidance Act also decreases the importance of the PPT, although there could be situations where the PPT is applicable, and the Tax Avoidance Act is not. If more tax treaties entered into by Sweden implement the PPT, it is likely that its significance will increase.

Usually, challenges to international transfer pricing adjustments have been made under domestic administrative court and mainly under DTT mechanisms through initiation of a MAP. Application of the EU Tax Disputes Directive or the EU Arbitration Convention have historically been rare and still are.

APA procedures have been described in 6.6 Use of ADR in Transfer Pricing and Cases of Indirect Determination of Tax.

The cross-border situations that generate the most litigation can vary from year to year. However, cases concerning transfer pricing, permanent establishments and withholding tax on dividends have been frequent in recent years.

Such litigation could be mitigated in the future by utilisation of the ADR mechanisms described in 6. Alternative Dispute Resolution (ADR) Mechanisms. More clarifying case law from the Supreme Administrative Court and updated legislation could also assist in providing more clarity on how the relevant rules should be interpreted, thus decreasing the risk of the STA and taxpayers having opposing views.

There is an ongoing dispute in the ECJ regarding whether the Swedish risk tax for certain credit institutions constitutes an illegal form of state aid. The Swedish risk tax imposes tax based on the amount of a credit institution’s debt, provided that the credit institution exceeds the threshold to qualify for the tax. The purpose of the tax is to strengthen the state’s finances and to cover indirect costs in a financial crisis, with the rationale that large credit institutions are responsible for such indirect costs. The claimants have argued that the risk tax constitutes unlawful state aid since it distorts competition by only imposing the tax on a small number of credit institutions that exceed the threshold.

The General Court ruled that the risk tax does not constitute unlawful state aid. The case has been appealed to the Court of Justice and the procedure is not yet finalised.

There is also a case from the Supreme Administrative Court concerning whether a lower tax rate on Swedish real estate tax for wind power plants constituted unlawful state aid. The court found that it did, meaning that the lower tax rate could not be applied to the extent that it violated EU state aid rules.

To the writers’ knowledge, no other noteworthy state aid disputes involving taxes have occurred in Sweden to date. However, tax controversy lawyers and heads of tax of multinational companies within the EU need to follow the developments regarding state aid disputes.

If state aid has been provided to a taxpayer without the taxpayer being eligible to receive the state aid, the STA can demand repayment of the amount provided. The recovery procedure normally follows that of the ordinary tax procedure– ie a reassessment decision is made by the STA, which can be appealed.

Taxpayers have in certain cases challenged tax assessments whereby the STA has denied state aid or obligated the taxpayer to repay unlawful state aid. The outcome of such challenges has depended on the circumstances in each specific case.

To the writers’ knowledge, there are no cases of refunds of state aid that have resulted in extra-contractual civil liability for the state with respect to taxes. However, such liability for the state is possible.

Sweden has opted to apply part VI of the MLI with CTAs. The arbitration clause has been included in the DTT with, eg, the United Kingdom and Northern Ireland. The arbitration clause has rarely been applied in practice in Sweden. The reason is often that the double taxation is removed in the MAP or that arbitration is denied due to tax penalties being levied in Sweden (which under certain circumstances can prevent arbitration proceedings).

Not many DTTs entered into by Sweden contain arbitration clauses, but the ones that do typically exclude disputes concerning the interpretation of the clauses regarding double residence for persons other than individuals and attribution of capital to a permanent establishment. A case may not be submitted to arbitration if the competent authorities have agreed that the case is not suitable for resolution through arbitration (eg, the DTTs with Armenia and Japan). However, arbitration proceedings take place continuously.

Regarding reservations under the MLI, Sweden has made reservations to not apply the possibility of arbitration in the following circumstances:

• cases of double residence for persons other than individuals;
• cases of intangible assets that are difficult to value (under certain circumstances); and
• cases where the competent authorities conclude that the matter is not suitable for resolution through arbitration.

Sweden has opted for the independent opinion procedure rather than the baseball arbitration method and has made a reservation against the latter. The independent opinion procedure means that the arbitration tribunal is not bound by the respective competent authority’s proposed solution but can instead make an independent assessment of the case.

The reason that Sweden opted for the independent opinion procedure was, according to the preparatory works, to increase the likelihood that the tribunal’s decision is in accordance with the principles of international law. This also enables coherence with the EU Tax Disputes Directive and the EU Arbitration Convention since the independent opinion procedure is used in these regimes as well.

The EU Arbitration Convention has been implemented in Swedish law and can be used to eliminate double taxation in cases concerning transfer pricing. The convention enables taxpayers in EU member states to request that a double taxation on intra-group transactions is eliminated through a MAP or subsequently an arbitration procedure if the MAP is not successful.

Implementation of the MLI and the EU Tax Disputes Directive has been described in 8. Cross-Border Tax Disputes.

There is no available information on the number of initiated or concluded arbitration cases in Sweden. It is therefore difficult to assess whether the international and EU legal instruments concerning arbitration have been used already. To the writers’ knowledge, arbitrations under DTTs take place continuously but there have not yet been any arbitrations under the EU Directive. Most disputes are settled in the MAP before arbitration is needed.

Pillar Two has been implemented in Swedish legislation, with effect as of 1 January 2024. There are no specific instruments to mitigate controversies pursuant to the Pillar Two rules. Due to the short period the rules have been in effect, there is no case law on the application of the rules yet and relatively few companies are subject to the rules. It therefore remains to be seen whether the Pillar Two rules will result in a significant number of disputes.

Pillar One has not been implemented as a final package on the rules has not yet been finalised by the Inclusive Framework, and it is currently unclear when this will happen. It therefore remains to be seen how the envisaged instrument to mitigate controversies and increase tax certainty will be drafted and whether these mechanisms will work as intended in practice.

The main rule in Sweden is that decisions concerning tax constitute public documents that can be made available to anyone who requests the decision. However, a decision pursuant to an APA is confidential. An agreement after arbitration pursuant to the EU Arbitration Directive, or a summary thereof, is made public on the STA’s website.

As indicated above, the most common legal instrument to settle international tax disputes is through a MAP. The reason behind this may be Sweden’s vast network of DTTs with other states that enable double taxation to be resolved through a MAP. The STA as competent authority is also experienced in MAP proceedings and has a good track record of removing double taxation via MAP proceedings in recent years. Arbitration proceedings take place continuously but most double taxation cases are settled in the MAP before arbitration is needed.

Arbitrators are generally selected by the competent authorities, whereby the STA in its capacity as competent authority in Sweden selects one or more arbitrators on behalf of Sweden. The STA does not provide any available information on the persons selected as arbitrators.

Submitting a request for reassessment to the STA can be made free of charge by the taxpayer. Thus, there are no costs to file an administrative claim. Submitting such a request will, however, in many cases require assistance by tax professionals, which can result in significant costs for the taxpayer depending on the complexity of the case.

There are no fees to appeal a tax decision to a judicial court. This applies for each instance of the courts. However, as mentioned in 11.1 Costs/Fees, appealing a tax decision will normally require legal assistance by tax professionals. The cost of engaging a tax professional will not be paid by the court except in cases where the taxpayer is successful in its appeal; and, even so, not all costs will be reimbursed in most cases. The taxpayer never has to pay any of the STA’s litigation costs.

A taxpayer has the right to receive reimbursement by the state for its litigation costs if the court rules or the STA decides in favour of the taxpayer’s claim wholly or in part. If this is not the case, the taxpayer can also be granted reimbursement if the case concerns a question that is of importance to the application of law or if there are extraordinary circumstances that warrant reimbursement. If reimbursement is granted, the taxpayer’s costs must still be reasonable in relation to the case at hand, which means that the court or the STA often do not grant full or close to full reimbursement.

There is also the possibility to make a claim against the state for damages that the taxpayer assesses have occurred due to a wrongful decision by the STA.

The costs of using an ADR mechanism depend on the mechanism in question. Requesting an advance ruling by the Board for Advance Tax Rulings costs between SEK1,000 and SEK20,000. The fee for applying for a new APA or renewing an existing APA is between SEK100,000 and SEK150,000. These fees do not include legal fees paid to tax professionals in assisting with the respective mechanism. A MAP application can be made free of charge.

The number of pending tax cases in the administrative courts in each instance as of 31 December 2024 are as follows:

• administrative court – 3808;
• administrative court of appeal – 2259; and
• Supreme Administrative Court (including cases awaiting leave to appeal) – 233.

The number of pending tax court cases has decreased in the administrative court during the year 2024, while the opposite is true in the administrative court of appeal. This trend could be explained by the fact that the administrative courts have been deciding more tax cases, thus leading to more appeals, which increases the number of pending cases in the administrative courts of appeal.

Cases initiated and decided in each court instance in respect of different taxes during the year 2024 are as follows.

• Cases in the administrative courts:
1. income tax – 3,737 (initiated) and 3,968 (decided);
2. VAT – 1,121 (initiated) and 1,087 (decided);
3. excise duties, withholding tax, etc – 382 (initiated) and 557 (decided); and
4. other fees (eg, tax penalties unrelated to another case) – 648 (initiated) and 619 (decided).
• Cases in the administrative courts of appeal:
1. income tax – 1,158 (initiated) and 984 (decided);
2. VAT – 640 (initiated) and 326 (decided);
3. excise duties, withholding tax, etc – 363 (initiated) and 86 (decided); and
4. other fees (eg, tax penalties unrelated to another case) – 141 (initiated) and 133 (decided).
• Cases in the Supreme Administrative Court:
1. income tax – 546 (initiated) and 824 (decided);
2. VAT – 120 (initiated) and 138 (decided);
3. excise duties, withholding tax, etc – 17 (initiated) and 42 (decided); and
4. other fees (eg, tax penalties unrelated to another case) – 51 (initiated) and 51 (decided).

During 2024, the number of cases where the administrative courts ruled in favour of the taxpayer was 13.6%. The number of cases where the administrative courts of appeal reversed the ruling from the administrative court wholly or in part was 14.6%. The number of cases where the Supreme Administrative Court reversed the ruling from an administrative court of appeal wholly or in part was 3.5%. The percentages include cases where the court has only partly ruled in favour of the taxpayer – eg, where the tax levied is unchanged but the tax penalties are removed.

It should be noted that the percentages from the administrative courts of appeal and the Supreme Administrative Court include cases where the lower instance has ruled in favour of the taxpayer, but the higher instance has reversed the ruling to the detriment of the taxpayer. However, since the lower instance in most cases does not side with the taxpayer, the statistics still indicate the number of cases in the higher courts where the taxpayer is successful in appealing.

In general, it seems that taxpayers are slightly more likely to succeed in appealing decisions concerning VAT rather than income tax and other taxes. During 2024, the administrative courts ruled in favour of the taxpayer in 41.7% of the VAT cases. According to the STA, this can be explained by certain precedents set by the Supreme Administrative Court. The number of cases where the administrative courts ruled in favour of the taxpayer in cases concerning income tax was 11.6%.

Assessment of Law and Facts

The taxpayer must make a comprehensive analysis of relevant laws and facts to assess whether there are grounds for challenging the STA’s view on the matter at hand. If the matter only concerns interpretation of law, then an appeal right away may be more efficient since a request for reassessment most likely will not result in the tax being lowered.

Oral Hearing or Not

The main rule is that the tax dispute process is a written procedure and that an oral hearing is not held unless requested by the taxpayer. The taxpayer must therefore consider whether it is beneficial for its case to request an oral hearing. An oral hearing can be used to hear witnesses or present evidence, or legal arguments differently compared to a purely written presentation.

Representation by a Tax Professional

The statistics in 12.3 Parties Succeeding in Litigation highlight the general view among practitioners that it is difficult for taxpayers to succeed in tax litigation in Sweden. This has recently been underlined in a report by the Centre for Justice in Sweden. According to the report, a taxpayer is almost three times as likely to succeed in tax litigation if the taxpayer is represented by outside counsel.

Thus, a crucial part to consider in tax controversies is having representation by a tax professional with extensive knowledge of the procedural rules. In complex cases, the taxpayer may also consider consulting two or more different tax professionals with expertise in different areas.

Besides representation in litigation in court, taxpayers should also consider bringing in a tax professional at the administrative stage. As indicated above, this can be done, eg, if an audit or investigation has been initiated by the STA. Furthermore, if the taxpayer is planning on making an open claim in its tax return, a tax professional should generally be hired to assist in the drafting since it can minimise the risk of getting tax increases for six years instead of two years, tax penalties and a criminal offence. Tax litigation in Swedish courts can be difficult and costly, which means that the taxpayer should try to avoid it if possible. Assistance by a tax professional as early as possible in an ongoing or potential tax controversy situation is therefore recommended.