Swedish transfer pricing legislation was introduced in 1928 and has evolved, with significant amendments in 1965, and 1983, and incorporation into the Income Tax Act (ITA) in 2002. Specific documentation requirements were added in 2007 and amended in 2017 to support the application of transfer pricing rules.
The Swedish TP rules largely follow the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (The OECD TP guidelines). Currently, the transfer pricing rules in Sweden are governed by Section 14 of the Swedish Income Tax Act.
Arm’s Length Principle
Section 14, para 19 of the Swedish Income Tax Act stipulates that if a business earns less because it agreed to terms different from those that independent companies would typically accept, its result will be adjusted to what it would have been under normal conditions. This adjustment applies only if the party receiving a higher benefit is not taxed for it in Sweden, there is reason to believe that the parties have shared economic interests, and there is no indication that the terms were set for any other reason.
Related Party Definition
Section 14, para 20 of the Swedish Income Tax Act specifies that a related party exists when a community of economic interests exists between two businesses. This happens when one business either directly or indirectly influences, has some management control of, or owns shares of another business, or when the same individuals or entities control, manage, supervise, or own shares in both businesses. In those cases, companies are viewed as related because they have links financially or operationally, or they are connected through ownership or control connections.
Transfer Pricing Methods
Swedish tax courts rely on OECD-recommended traditional transaction methods, such as the comparable uncontrolled price (CUP), resale price, and cost-plus methods, for establishing arm’s-length prices. As for the Transactional Profit Methods -the profit split method (PSM) and transactional net margin method (TNMM) are used as a last resort when traditional methods are inadequate, though their acceptance in case law is not fully established. Hence, traditional methods take precedence, with the CUP method prioritized among traditional methods, and the profit split method preferred over TNMM among profit methods.
Comparability Analysis
Sweden follows the OECD Transfer Pricing Guidelines (TPG) for comparability analysis as outlined in Chapter III. There is no preference for domestic comparables over foreign ones, and the tax administration does not use secret comparables for transfer pricing assessments. While Swedish legislation does not explicitly mandate the use of an arm’s length range or statistical measures, their application is allowed based on TPG interpretation. Comparability adjustments are not required under Swedish domestic legislation or regulations.
Documentation Requirements
Transfer pricing documentation requirements in Sweden are based on the three-tiered approach set forth by the OECD. This requires multinational groups to submit the following documentation to the Swedish tax authorities:
- Master file;
- Local file; and
- Country-by-Country (CbC) report.
Taxpayers must prepare a master file, local file, and country-by-country report in line with OECD guidelines, but they are only required to submit the master and local files upon request. The local file must be ready by the company’s income tax return filing deadline, while the master file must be prepared by the parent company’s filing deadline. Documentation can be in Swedish, Norwegian, Danish, or English. The country-by-country report must be submitted within 12 months after the MNE group’s fiscal year-end.
Country-by-Country Reporting
- Sweden has adopted the OECD standard for CbC reporting, which is implemented through the multilateral Competent Authority Agreement (MCAA) and EU Directive amendments. Multinational groups with revenue of SEK 7 billion or more must file a CbC report. A Swedish parent or designated group company must file if the ultimate parent is not obligated to file in its jurisdiction.
- Group companies must notify the STA of their reporting obligations before the end of the financial year. The report must include detailed financial and operational information for each jurisdiction, such as revenue, profits, taxes, and employee numbers. Reports must be submitted within one year of the end of the financial year, with penalties for non-compliance.
- Reports are exchanged with other countries’ competent authorities, provided agreements exist for such exchanges.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Advance Pricing Agreements (APA)
In Sweden, Advance Pricing Arrangements (APAs) are agreements between the Swedish Tax Agency (STA) and a foreign tax authority on the pricing of cross-border intra-group transactions. Taxpayers must submit a written application to the STA and can request a meeting before applying. Only bilateral and multilateral APAs are allowed, meaning they are only available if a tax treaty exists between Sweden and the other country. APAs are approved if the transactions are significant, clearly analyzable, and necessary information is provided by both parties. Unilateral APAs are not accepted. The application fee is SEK 150,000 per country, with reduced fees for additional applications. Sweden’s broad tax treaty network allows MAP to resolve double taxation issues.
Mutual Agreement Program (MAP)
The MAP allows individuals or entities to address taxation following tax treaties by presenting their cases to the competent authority of their resident or national state. MAP can eliminate double taxation, particularly in transfer pricing and permanent establishment matters. Taxpayers are not formal parties in MAP but can provide information and receive insights during proceedings.
Some Swedish treaties lack a time limit for presenting cases, while others, like the U.S. treaty, have a three-year limit from the first notification of the action. Taxpayers can pursue MAP regardless of domestic proceedings and must request a stay to access MAP. Without a tax treaty, double taxation may be addressed through Swedish foreign tax credit rules, though limitations exist for corporate tax credits.
Sweden aligns with BEPS Action 14 standards for effective dispute resolution and supports a binding MAP procedure. Sweden signed the MLI to prevent base erosion and profit shifting, with MAP procedures conforming to BEPS Action 14 guidance. The MLI allows taxpayers to present cases to competent authorities in either contracting jurisdiction. Sweden’s tax agreements largely comply with new MAP requirements, and the country has adopted the new procedures without reservations to the MLI article.
Approach to Transfer Pricing Audits
In Sweden, tax returns are not regularly examined except for large companies, which undergo routine audits. Random checks and targeted inspections for certain industries or taxpayer groups do occur. Large companies typically face audits on deductions and tax items over SEK 100,000, with group-wide audits every five years, including transfer pricing reviews. The tax authorities focus on serious errors, past mistakes, and tax avoidance, especially in industries with lower compliance. Nationally coordinated audits are also conducted.
Penalties
There are no direct penalties for not preparing transfer pricing documentation. However, penalties may apply if the Swedish Tax Agency audits a company’s transfer pricing and finds issues. If the audit results in additional tax due to missing or incorrect information in the tax return, a penalty of 40% of the extra tax is usually charged.
Taxation at a Glance
Sweden has a flat corporate income tax rate. Since 2003, it has had a favorable tax system for company ownership and one of the largest networks of tax treaties worldwide. These features make Sweden an attractive place for holding companies. For businesses, income from their activities is taxed under corporate income tax, which is the only tax on business income. Individuals in Sweden pay three types of income taxes: municipal, county, and national. These taxes are based on three types of income: salary, business profits, and capital gains.
The official name of the Swedish tax authority is the Tax Authority in Sweden (Skatteverket).
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 20.6% |
VAT | 25% |
Withholding tax on dividends to non-residents | 30% |
Withholding tax on interest to non-residents | 0% |
Withholding tax on royalties to non-residents | 20.6% |
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