KPMG has successfully acted as a representative in the Supreme Administrative Court's case no. 1348–1349-24. The judgment is an important and welcome clarification that administrative courts, in connection with double taxation, can examine a claim for a so-called corresponding adjustment according to the provisions in a tax treaty.
A Swedish limited company declared interest income on loans provided to a Norwegian subsidiary. The Norwegian subsidiary had claimed deductions for the corresponding interest expenses. However, by decision of the Norwegian tax authority, the Norwegian subsidiary was denied deductions for a certain portion of the interest expenses, as the loan was not considered to be at arm's length. The Norwegian subsidiary appealed the decision in Norwegian courts, which rejected the appeal in a ruling that gained legal force.
Subsequently, the Swedish company claimed that the corresponding interest income should not be taxed in Sweden, among other things, based on Article 9.2 of the Nordic Tax Treaty on so-called corresponding adjustments. The article stipulates that a transfer pricing adjustment in one contracting state (in this case Norway) should, in certain cases, lead to a corresponding adjustment in another contracting state (in this case Sweden). One condition is that the other state considers the adjustment justified both in principle and in terms of the amount.
The Swedish Tax Agency rejected the company's appeal as the agency did not consider the Norwegian tax adjustment justified. The Administrative Court granted the company's appeal of the Tax Agency's decision. However, the Administrative Court of Appeals, after appeal by the Tax Agency, held that it is not the courts' responsibility to make such an adjustment as prescribed in Article 9.2 of the Nordic Tax Treaty. Therefore, according to the Administrative Court of Appeals, the interest incomes could not be exempted from taxation on that basis.
The Supreme Administrative Court's ruling has now clarified that the court can examine a claim for a corresponding adjustment under Article 9.2 of the Nordic Tax Treaty. The relevant provision is based on Article 9.2 of the OECD Model Tax Convention, which is why the ruling, in our view, is generally applicable to the majority of tax treaties that Sweden has entered into with other states.
The possibility of having a claim for a corresponding adjustment examined in court is an important legal remedy for individuals subject to double taxation due to foreign tax adjustments and conditions that are not considered to be at arm's length.
The case has now been referred back to the Administrative Court of Appeals for substantive examination.
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The article in Swedish
