Global Tax Alert (News from Transfer Pricing) | 12 May 2016
Sweden proposes implementation of OECD standard for transfer pricing documentation and automatic exchange of CbC reports
In late 2015, the Swedish Tax Agency (STA) was given a mandate by the Swedish Ministry of Finance to investigate and propose changes to the domestic tax legislation on how to implement the G20/Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) Action 13 Transfer Pricing Documentation and Country-by-Country (CbC) Reporting including the information exchange of the CbC reports with other countries. The STA submitted its proposal to the Swedish Ministry of Finance on 29 April 2016, and the suggested changes are proposed to come into effect on 1 January 2017.
The proposed legislation contains an obligation for all parent entities of Swedish multinational groups with at least SEK7 billion (approx. US$861 million) in group revenues during the preceding fiscal year to submit the CbC report to the STA within 12 months after the end of the reporting year. In addition to the parent entity, there are three categories of “units” that can be obligated to submit the CbC reports: (i) if the parent entity is not obligated to submit the CbC reports in its country of residence; (ii) if the country of residence does not have a valid agreement with Sweden regarding the automatic exchange of CbC reports; or (iii) the STA has deemed the country of residence as having a “systemic failure.” These units can be entities which are included in the multinational group’s consolidated accounts (or which would be, should that entity’s shares be subject to trade on a regulated market), an entity that is not included in the group’s consolidated accounts due to its small size or significance, or a permanent establishment (PE) to those previously mentioned entities provided that the PE has accounts.
Regarding the exchange of information, Sweden will share the CbC reports with a country if one unit of the group is resident in that other country, or if a unit is taxed there due to the presence of a PE. The information will be shared through the automatic information exchange within 15 months after the end of the reporting year.
The STA proposes that there should be no new or special sanctions introduced if a parent entity or a unit does not comply with the new CbC reporting legislation, and proposes the usage of existing enforcement rules where the STA can request the submission of documents, but such a request, together with a fine, must be approved by the administrative court before payment liability arises.
The first fiscal years to be affected by the proposed CbC reporting legislation are those beginning on or after 1 January 2016, with the first submission deadline extended to 31 December 2017. The requirement to inform the STA about which entity is the “reporting entity” is normally due before the end of the reporting year, but if the first reporting year ends before 1 January 2017, the information may be submitted before 31 March 2017.
Master file and Local file
The proposed legislation follows the OECD recommendation in BEPS Action 13, where the transfer pricing documentation is divided into two parts; a Master file where information regarding the multinational group is to be provided, and a Local file that serves as a complement to the Master file through the provision of information regarding the specific entity in question and detailed information regarding the cross-border transactions.
Change of transfer pricing documentation obligation
According to the proposed legislation, small and medium sized groups shall be excluded from the obligation to prepare transfer pricing documentation. The STA proposes the definition of these categories to be connected to the European Commission’s definition of micro, small and medium sized enterprises, where small and medium sized enterprises are those employing less than 250 persons and having an annual turnover below SEK450 million (approx. US$55.4 million) or a balance sheet below SEK400 million (approx. US$49.2 million).
In contrast, the STA proposes at the same time that the Swedish legislation regarding the obligation to prepare transfer pricing documentation should be expanded to also include Swedish entities’ PEs abroad, general partnerships (and their PEs abroad) and foreign entities’ PEs in Sweden.
To avoid the documentation of minor and unimportant transactions, the STA proposes a threshold where aggregated transactions with a counterparty below SEK5 million (approx. US$615,000) are deemed “nonessential” and do not need to be documented in the local file. This means that nonessential transactions do not need to be described in detail in the local file or to be benchmarked. A description of the application of a transfer pricing method on those transactions is also not required. There is nevertheless an obligation to describe the entity/PE, its business and whether it has transactions with that counterparty. Transactions regarding the license or sale of intangible assets cannot be deemed as “nonessential” transactions, should the assets in question be deemed to be essential for the business of the group.
The local file is to be prepared at the time of the submission of the annual income tax return. The master file is to be prepared at the time of the submission of the annual income tax return of the group’s parent entity. Both categories of documentation can be in Swedish, Danish, Norwegian or English and do not need to be submitted to the STA until requested. The first fiscal years with the new transfer pricing documentation rules are proposed to be those beginning on or after 1 January 2017.
For additional information with respect to this Alert, please contact the following:
Ernst & Young AB, Stockholm
- Olov Persson
+46 8 520 590 00
- Alborz Shouri
+46 8 520 595 86
Ernst & Young LLP, Scandinavian Tax Desk, New York
- Nina S Brodersen
+1 212 773 1727