Concept and Regulation in Sweden

In Sweden, there is only one legal regulation on Transfer Pricing (Chapter 14, Section 19 of the Swedish Tax Code). This section adopts the Arm’s Length Principle. In addition, the Swedish Tax Authority (“STA”) and the Swedish Supreme Administrative Court have determined that the OECD Guidelines can be used to assess Swedish Transfer Pricing issues. Effectively, the OECD Guidelines are used as guidance to prepare Transfer Pricing documentation.

The Arm’s Length Principle is set out in Chapter 14, Section 19 of the Swedish Tax Code and is often referred to as the “adjustment rule.” The adjustment rule is based on Article 9 of the OECD Model Tax Convention on Income and Capital and interpreted under the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Scope of Transfer Pricing Application

The Arm’s Length Principle implies that pricing between controlled entities is established as independent enterprises in comparable situations. The burden of proof to demonstrate improper pricing is on the Tax Agency.

It will apply to Swedish taxpayers who:

  • Companies carrying out cross-border transactions with related parties and
  • Permanent establishments of non-resident legal entities entering into cross-border transactions within the same legal entity.

Definition of Related Parties in Sweden

Chapter 39, Section 2 of the Income Tax Act states that legal entities are considered related parties if the companies are considered to be parent or subsidiary companies or if these are essentially under joint management.

Parties will be considered related if:

  • One party, directly or indirectly, participates in the management or monitoring of another party’s enterprise or owns shares in that enterprise, or
  • The same persons, directly or indirectly, participate in the management or monitoring of both enterprises or own shares in those enterprises.

Transfer Pricing Methods

Current OECD methods, such as the Comparable Price method, Resale Price method, Cost plus Profit method, Profit Split method, and Transactional Net Margin method, are accepted under the Swedish law. The method used must reflect the functional, risk, and asset profile of the parties to the transaction. Other methods are permitted.

There is no established hierarchy in the application of the different methods.

Transfer Pricing Statement in Sweden

The Swedish documentation requirements are generally based on the OECD Guidelines and state that the transfer pricing documentation in Sweden will consist of a Master File, a Local Report, and a Country-by-Country Report.

There is no filing requirement for the Transfer Pricing Documentation, so this should only be filed upon prior request from the Swedish Tax Authority. This documentation is intended to provide the necessary information for the Administration to carry out tax enforcement and transfer pricing risk assessment. The documentation should therefore include information demonstrating that the taxpayer’s intra-group cross-border transactions comply with the Arm’s Length Principle.

The documentation can be prepared in Swedish, Danish, Norwegian, or English.

Country by Country Report

Sweden has introduced country-by-country reporting rules effective for groups with revenues exceeding SEK 7 thousand million, requiring large multinational companies to file a report covering several key figures, such as revenues, profit (or loss) before income tax, income tax paid in cash, number of employees, among other things.

In addition, the CbCR report should also contain information on the business activities of each group entity in each jurisdiction. A country-by-country report must be filed no later than 12 months after the end of the fiscal year the report relates to.

Master File

The documentation must contain the following and the deadline for preparing the Master File is the tax filing date of the parent company of the group.

  • Overview of the Group and its business (Activities, Transfer Pricing Policy, etc.).
  • Organizational chart of the structure and information of which country each entity is from.
  • Overview of the Group’s transactions.
  • Information on intangible assets.
  • Intra-group financial transactions.
  • Financial information and details of tax-related agreements.

Local Report

The documentation must contain the following and the deadline for preparing the Swedish Local Report is the tax filing date of the Swedish company.

  • Company information.
  • All significantly related party transactions.
  • Financial information.

Sanctions for Transfer Pricing non-compliance

There are no specific transfer pricing penalties. Penalties are imposed on taxpayers for providing the Swedish Tax Agency with inaccurate data or insufficient information. Penalties range from 10% to 40% of the additional tax imposed.

An incorrect tax return intentionally filed may constitute a tax offense (with a risk of imprisonment of up to 6 years in serious cases).

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