Taxing authority and tax law
Tax authority: Swedish Tax Agency
Tax law:
- Sections 14:19-20 of the Income Tax Act include the arm’s length principle
- Sections 19:2a and b of the Law (2001:1227) on income tax returns and income statements include the documentation requirements regarding transfer prices
The Swedish Tax Agency is responsible for the correct and uniform implementation of the tax laws. It issues guidelines, recommendations and publishes its standpoints on specific issues to the local tax offices.
Relevant regulations and rulings
Section 12:4 of the regulations (2001:1244) on income tax returns and income statements and the regulations (SKVFS 2007:1) regarding documentation of the pricing between associated enterprises. The tax authority also issues general taxation guidelines, which include information on transfer pricing.
OECD guidelines treatment
The Swedish tax laws on transfer pricing refer to the OECD Transfer Pricing Guidelines, and they are applied by the courts and tax authorities.
Chapter IX of the OECD Transfer Pricing Guidelines (on Business Restructurings) is expected to significantly increase the Tax Agency’s focus on restructuring but potentially also on existing structures, for example in relation to allocation of risk between related parties.
Priorities/pricing methods
One of the methods described in OECD guidelines should be applied. Transaction-based methods are, all other things equal, preferred over profit-based methods.
Transfer pricing penalties
There are no specific transfer pricing penalties. General penalty rules apply, with penalties ranging from 10% to 40% of the additional tax imposed. In transfer pricing cases, penalties at a rate of 40% are generally imposed.
Penalty relief
Penalties are imposed on taxpayers for supplying the tax authority with inaccurate or insufficient information. In the preparatory work to the law that introduces transfer pricing documentation requirements, it is stated that if an income adjustment is made because the taxpayer’s prices are not deemed to be at arm’s length; the penalties might be reduced or eliminated if the taxpayer has prepared proper transfer pricing documentation.
Documentation requirements
Multinational enterprises are required to document transactions with related companies as of 1 January 2007. The new legislation introduces formal transfer pricing documentation requirements in relation to cross-border transactions within multinational enterprises.
The documentation must include:
- A description of the company, organization and business operations
- Information regarding the characteristics and scope of the transactions
- A functional analysis
- A description of the chosen pricing method
- A comparability analysis
The functional analysis should, in addition to identifying the functions performed, risks assumed and assets used, also describe which functions, risks and assets contribute to the company’s ability to generate profit. Moreover, the importance of the comparability factors described in the OECD guidelines is highlighted.
Documentation prepared in accordance with the code of conduct regarding European Union Transfer Pricing Documentation (EU TPD) is deemed to comply with the Swedish documentation requirements. The documentation should be prepared in the Swedish, Danish, Norwegian or English language.
For transactions of limited value, it is possible to prepare simplified documentation. Transactions of limited value for fiscal year 2009 include the sale or purchase of goods amounting to approximately SEK27m or less per counterparty on a yearly basis, or other transactions amounting to approximately SEK5m or less per counterparty on a yearly basis. Simplified documentation is not possible for transactions involving the sale of intangible assets.
The simplified documentation should include the following:
- The group’s legal and organizational structure and a description of the business operations
- The counterparty to the transaction and information on that entity’s business operations
- Information on the intercompany transactions, including the type of transaction, amounts and value
- The method applied to the transaction to comply with the arm’s length principle
- Information on comparable transactions, if utilized
Documentation deadlines
The underlying analysis should, in principle, be prepared in connection with the transaction. The final documentation should be available upon request from the tax authority. Such a request is possible from the date that the income tax return is filed.
Statute of limitations on transfer pricing assessments
A general statute of limitations applies, which is within five years from the year of assessment.
Return disclosures/related-party disclosures
No specific disclosure requirements when filing the tax return currently exist. However, submiting the documentation when filing the tax return may eliminate risk of penalties.
Audit risk/transfer pricing scrutiny
The risk that transfer price adjustments will be scrutinized during an audit is high. There has been a significantly increased focus from the tax authority on transfer pricing-related issues.
APA opportunity
Formal APA procedures exist as of 1 January 2010.
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