Sweden: Administrative courts have jurisdiction to review claims for corresponding adjustment under income tax treaty (Supreme Administrative Court decision)
Corresponding adjustment is an important legal remedy for taxpayers potentially subject to double taxation
The Supreme Administrative Court held (case no. 1348–1349-24) that administrative courts have jurisdiction to examine claims for a corresponding adjustment under the provisions of an income tax treaty.
Summary
A Swedish limited company declared interest income on loans provided to a Norwegian subsidiary, and the Norwegian subsidiary claimed deductions for the corresponding interest expense. However, by decision of the Norwegian tax authority, the Norwegian subsidiary was denied deductions for a certain portion of the interest expenses because the loan was not considered to be at arm's length. The Norwegian subsidiary appealed the decision in Norwegian courts, but its appeal was denied.
Subsequently, the Swedish company claimed that the corresponding interest income was not taxable in Sweden as the result of a corresponding adjustment under Article 9.2 of the Nordic income tax treaty, which provides that a transfer pricing adjustment in one contracting state (in this case Norway) may lead to a corresponding adjustment in another contracting state (in this case Sweden). The Swedish tax authority rejected the company's claim, and the taxpayer appealed to the Administrative Court of Appeals, which found that it did not have jurisdiction to examine a claim for a corresponding adjustment under the provisions of an income tax treaty.
The taxpayer then appealed to the Supreme Administrative Court, which held that administrative courts have jurisdiction to review a claim for a corresponding adjustment under Article 9.2 of the Nordic income tax treaty because such an adjustment is an important legal remedy for taxpayers potentially subject to double taxation due to foreign tax adjustments and conditions that are not considered to be at arm's length. The court then referred the case back to the Administrative Court of Appeals for substantive examination.
Read a November 2024 report prepared by the KPMG member firm in Sweden