Court confirms: Audi AG does not have a permanent establishment in Sweden

The Administrative Court of Appeal has previously ruled that Audi's winter testing activities in northern Sweden do not lead to a permanent establishment and Audi is therefore not liable to pay corporate income tax in Sweden. The ruling provides important guidance for several other companies and groups that carry out similar types of activities in Sweden and shows the importance of a correct assessment of the circumstances of each individual case. On 25 November 2024, the Supreme Administrative Court decided not to grant leave to appeal following the Swedish Tax Agency's appeal, and the Administrative Court of Appeal's judgment thus stands. 

For several years, Audi has been conducting winter testing activities in northern Sweden, where the company tests its vehicles in winter conditions. The Swedish Tax Agency has argued that these activities lead to Audi having a permanent establishment in Sweden and consequently to Audi being liable to pay corporate income tax in Sweden. In order to clarify the matter, KPMG has assisted Audi in appealing the Swedish Tax Agency's decision.  

In a ruling of 12 April 2024 (KRS 4140-23), the Administrative Court of Appeal ruled that Audi does not have a permanent establishment in Sweden as a result of its winter testing activities.

The Administrative Court of Appeal agrees with the Swedish Tax Agency and the Administrative Court that Audi has a fixed place in Sweden. However, in order for a permanent establishment to exist, Audi's core business must be conducted from that location. The Administrative Court of Appeal notes that Audi's core business is to develop, produce and distribute cars. The activities conducted in Sweden are limited to testing and collecting data from these tests. The information is thereafter sent to Germany for further analysis and product development. Some adaptations and adjustments of software and hardware are carried out on site in Sweden to optimize the testing. The test objects include prototypes and pre-series cars that are several years from production. Car testing in winter conditions is also carried out in other countries. Furthermore, the Swedish operations take up only a small part of the company's resources for research and development.

In light of the investigation in the cases, the Administrative Court of Appeal states in its ruling that the testing activities conducted in Sweden, which aim to collect data, have a limited significance for Audi's overall operations. The activities in Sweden are therefore not considered to be core activities but are instead considered to be of a preparatory or auxiliary nature.

The Swedish Tax Agency has therefore not been able to show that Audi conducts its core business from the fixed place. The test facility is therefore not considered a permanent establishment, and Audi should not be taxed on income in Sweden.

The Swedish Tax Agency appealed the Administrative Court of Appeal's judgment to the Supreme Administrative Court, which on 25 November 2024 decided not to grant leave to appeal, which means that the Administrative Court of Appeal's judgment stands.

It is important to note that the Administrative Court of Appeal has previously issued a ruling with some similar circumstances. In the ruling of the Administrative Court of Appeal (KRS 2276-15), the court found that the German company Dunlop Tech GmbH had a permanent establishment in Sweden as a result of winter testing activities that could not be considered to be of a preparatory or auxiliary nature. The court emphasized the fact that developing and selling software for tire pressure systems was the company's core business and that the testing of software appeared to be of great importance in the development and production of the company's products. Furthermore, the court emphasized that the activities carried out in Sweden were carried out in the same way and by the same staff as when the activities were carried out in Germany or in other countries and should therefore be regarded as an essential part of the overall provision and generation of income. Furthermore, the court attached great importance to the fact that it was the end customers' cars that were used in the tests.

KPMG has assisted Audi in the case and sees the ruling as very important as it provides guidance for the assessment of what constitutes a permanent establishment in relation to winter testing activities in Sweden. A large proportion of the world's manufacturers of vehicles and vehicle parts carry out winter testing activities in Sweden. The ruling therefore provides important guidance for several other companies and groups that carry out similar types of activities in Sweden. 

The Administrative Court of Appeal determined that there were significant differences between Audi’s and Dunlop's activities in Sweden, resulting in different outcomes for each case. Notably, both rulings indicate that each case must be assessed on its individual circumstances, and general conclusions about winter testing activities and permanent establishment cannot be made. 

The Audi ruling paves the way for companies to challenge the Swedish Tax Agency's decisions in cases where the Tax Agency has imposed taxes on winter testing activities conducted within Sweden and when citing the Dunlop ruling as justification for such taxation. 

In view of the aforementioned, KPMG asserts that it is crucial for companies engaged in similar activities in Sweden to thoroughly examine their unique circumstances to assess the existence of a permanent establishment. Each situation requires an individual assessment, considering all relevant factors, including the scope and significance of the business to the company’s core operations.

At KPMG, we are happy to help with such analysis and can assist in disputes with the Swedish Tax Agency. You are welcome to contact us for a consultation on how we can support your company in these matters.

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Tobias Ljunggren
Partner, Corporate Tax
KPMG i Sverige
+46 70 981 26 16
tobias.ljunggren@kpmg.se