Detailed Commentary on the Swedish Tax Agency’s Transfer Pricing and CbC Proposals

Commentary on the Transfer Pricing and CbC Proposals

We have further examined the Swedish Tax Agency’s proposals for transfer pricing documentation and identified a number of particularly interesting points.



Annika Lindström

Partner & Head of Tax & Legal

KPMG i Sverige


As we wrote in TaxNews No. 2, 2016, the Tax Agency has submitted draft legislation to the Ministry of Finance for the purpose of implementing the OECD’s new documentation standards for transfer pricing and automatic exchange of country-by-country (CbC) reports (BEPS Action 13). The draft law includes a clarification of “unity of interests” ("intressegemenskap"), the introduction of documentation requirements for foreign companies with a permanent establishment in Sweden, Swedish enterprises with permanent establishments abroad, and Swedish partnerships, also specifying who will be required to prepare documentation. We have now examined the proposals in greater detail, and identified a number of points on which we make particular comment in this issue of TaxNews.

The Swedish Tax Agency’s Proposals

The Tax Agency’s proposals are in line with the OECD’s recommendations, and the documentation will comprise a master file for the whole group, country-specific documentation for each country in which the company operates locally (local file), and a CbC report.

The Tax Agency proposes that CbC reports should be filed by December 31, 2017, but that they should relate to fiscal years beginning on or later than January 1, 2016. It is proposed that the new documentation requirements (master file and local file) will apply for fiscal years beginning on or later than January 1, 2017. The draft legislation also includes provisions governing automatic exchange of CbC reports between EU member states, and those states that have signed the multilateral agreement on exchange of CbC reports.

The proposals extend the documentation requirements to include foreign enterprises with a permanent establishment in Sweden, Swedish enterprises with permanent establishments abroad, and Swedish partnerships.

A partnership will only be obliged to have documentation if it has transactions with a foreign enterprise, and its earnings are taxed in the hands of a Swedish enterprise that shares a unity of interests with both the partnership and the foreign enterprise. The duty to prepare documentation rests with the partnership, not the partners.

It is proposed that clarification of the term “unity of interests” be incorporated in the Tax Procedure Act, instead of reference being made to Chapter 14, section 20 of the Income Tax Act. It is suggested that the new definition of “unity of interests” should include “enterprises that are parent and subsidiary or enterprises under largely the same management”. The term will cover both permanent establishments and Swedish partnerships. If the economic unity of interests can be attributed solely to the direct or indirect capital holdings that an enterprise has in one or more other enterprises, the transactions need only be documented if the stake at each stage exceeds 50 percent.

Under the proposals, enterprises will be exempt from the documentation requirement if, during the preceding fiscal year, they belong to a unity of interests having fewer than 250 employees, and either having revenues not exceeding SEK 450 million or total assets of not more than SEK 400 million.

It is proposed that enterprises subject to the documentation requirement will not need full documentation for “immaterial” transactions, i.e. transactions that are insignificant in cash terms or do not involve a risk of incorrect pricing. This exemption means the documentation need not include details of the transactions, e.g. comparability analysis and a description of the chosen pricing method. But the obligation to provide general information about the enterprise and its business remains, as does the duty to disclose transactions with other intra-group enterprises.

Whether transactions are “immaterial” must be assessed in each case. Transactions relating to the enterprise’s main business or involving large values cannot be considered immaterial unless they fall below a threshold of SEK 5 million. The Tax Agency has proposed that transactions involving sums of less than SEK 5 million should always be considered immaterial. Exemption does not apply to transactions involving intangibles.

It should be pointed out that Swedish enterprises, partnerships or permanent establishments that do not need to prepare transfer pricing documentation must nonetheless price all intra-group transactions at fair market rates.

The purpose of CbC reporting is to provide member states with information so they can assess the risks of incorrect pricing in multinational groups of enterprises. The draft law means that multinational groups whose revenues the preceding fiscal year exceed SEK 7 billion must file certain information every year for each tax jurisdiction in which they operate. The main rule is proposed to be that the parent of a multinational group must file CbC reports with the tax authorities in the country in which it operates. The term “parent” means an enterprise (entity) that directly or indirectly owns a stake in one or more enterprises such that it is obliged to prepare consolidated financial statements. The principles governing parent enterprises accord with those used in the Annual Accounts Act.

If the country in which the parent is domiciled has no requirements for CbC reporting, or if the tax authorities in the country do not share CbC reporting with the Tax Agency, the Swedish subsidiary may be obliged to file CbC reports instead of the parent.

Note that under the proposals, Swedish companies must notify the Tax Agency at the end of 2016 which group company will be filing the CbC report for the group.

KPMG’s Comments

The draft legislation will mean that foreign enterprises with permanent establishments in Sweden, Swedish companies with permanent establishments abroad, and Swedish partnerships should review their transfer pricing and consider whether they will need to prepare transfer pricing documentation. The documentation requirements for permanent establishments will impact not only the income attributed to permanent establishments in Sweden; it will also impact computation of foreign tax and tax credit issues for Swedish enterprises with permanent establishments abroad.

Although Swedish enterprises, partnerships and permanent establishments will not have to prepare transfer pricing documentation, all intra-group transactions must take place on fair market terms. It will still be possible for the Tax Agency to adjust taxable earnings in cases of incorrect transfer pricing.

It is proposed that CbC reporting will apply as of FY 2016 and the new documentation requirements as of FY 2017. This time difference notwithstanding, it is extremely important that the transfer pricing documentation of multinational enterprises is reflected in CbC reporting, and that the CbC reporting is reflected in the group’s master file and local files. The documentation package should form a consistent whole.

The OECD standard sets the threshold for exemption from the CbC reporting requirement at €750 million. KPMG has noted that the Tax Agency’s proposals specify a fixed amount of SEK 7 billion, unrelated to the OECD threshold. A threshold fixed in Swedish kronor could render a Swedish parent of a group exempt from filing a CbC report if the group’s revenues are less than SEK 7 billion, whereas foreign subsidiaries (established in countries where the threshold is fixed in euros) will be obliged to file a CbC report if group revenues exceed €750 million.

The draft legislation does not clarify the OECD definitions, and it is essential that Sweden does not create its own definitions. Hence, there are still some ambiguities surrounding the interpretation of certain terms. The item “stated capital” is one ambiguous term used in CbC reporting. However, the commentary on the draft states that subscribed share capital or paid up share capital are likely to be appropriate terms.

The Ministry of Finance began a consultation on the draft legislation on May 4, 2016, involving a number of government agencies and private sector bodies. Consultation responses must be submitted to the Ministry by June 10, 2016. The response time is short, probably because the Ministry wishes to see legislation enacted by January 1, 2017.

It is now more important than ever for enterprises to review their transfer pricing documentation to see whether they meet the new requirements taking effect in Sweden and elsewhere, and to ensure fair market pricing. Do not hesitate to contact us if you would like more information about how the legislative proposals will affect your business.


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