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In a previously published TaxNews we have written about the new report on transfer pricing guidance on financial transactions published by the Organisation for Economic Co-operation and Development (“OECD”). Following the publication of this report, the Swedish Tax Agency (“STA”) has now updated its guidance (Swedish link) on the pricing of financial transactions.

In its updated guidance, the STA states that prior to the OECD report on financial transactions, there was little or no specific guidance on how to determine arm’s length prices for financial transactions. For this reason, the STA considers that the new OECD report merely contains clarifications on how to apply the arm’s length principle in relation to financial transactions. The clear implication is that the STA may apply the OECD report for transactions entered into even before its publication.

The STA accepted that one of the topics that was sufficiently clearly addressed in Swedish case law before the publication of the OECD report is the pricing of financial guarantees (section D of the OECD report), meaning that the guidance of the OECD report cannot be applied retroactively for these transactions. The previous Swedish case law on financial guarantees implied that a related party only had to charge another related party for a guarantee in exceptional circumstances – only where issuing guarantees was part of the core business of the guarantor, or the guarantor had incurred specific costs or relinquished specific income for the guarantees. The STA now considers this case law to be obsolete going forward and will require the remuneration for guarantees to be analyzed exclusively based on the OECD report. However, the old case law will still apply for guarantees issued prior to the publication of the new guidance, i.e. prior to April 17, 2020.

KPMG Comment

Following the updated STA guidance on financial transactions, KPMG expects greater scrutiny from the STA in this area. As stated above, the STA considers that the new OECD report contains only clarifications of the arm’s length principle and can therefore be applied retroactively. This view is consistent with how the STA has interpreted other updates to the OECD Guidelines. For example, following the new guidance on intangibles published by the OECD in 2015, the STA initiated several tax audits where principles and examples from the updated guidance were used as arguments for adjusting the taxpayers’ income even for previous years. KPMG therefore recommends taxpayers to assess their risk exposure, based on how consistent both their current and older pricing policies have been with the new OECD report on financial transactions.

Moreover, it is of interest that the STA considers that the principles of the new OECD report should prevail going forward even in areas where there is already long-standing Swedish guidance, such as for financial guarantees. The STA does not indicate if there are any other areas where Swedish case law has been sufficiently clear before the publication of the OECD report to prevent the report from being applied retroactively. Hopefully, if there are any such areas, this will be clarified in additional guidance from the STA.

Read more:
Earlier article (in Swedish) on the STA’s new guidance on financial guarantees

Annika Lindström
annika.lindstrom@kpmg.se

Fredrika Wendleby
fredrika.wendleby@kpmg.se