Do you have a registered branch or a permanent establishment in Sweden?

The Swedish Tax Agency is focusing on reviewing all permanent establishments and branches according to the OECD Guidelines on profit allocation. Profit allocation means that a functional analysis of the entity performed, and a description of the applied transfer pricing method is performed.

Because the permanent establishment and the branch are not separate legal entities from the company to which it belongs, it is not covered by all of the transfer pricing regulations. It is, however, important to have documented the way in which the group will allocate the results to the permanent establishment or branch.

The profit allocation is the base for the taxation of the permanent establishment or branch and the applied transfer pricing method shows that the reported result is at arm’s length. Should the result be considered not at arm’s length, the income will be raised and an administrative surcharge is imposed. The administrative surcharge is often very high and the possibility is to go back a maximum of six years.

If you are preparing a corporate tax return (or is obligated to do so) for a permanent establishment or a branch in Sweden you need to be aware of the risks involved.

1. Has a functional analysis and a profit allocation been performed?
2. Has the profit allocation been reviewed by a transfer pricing expert?

If the answer is “no” to one or both the questions please feel free to contact us in order to assess the risks involved of the corporate tax return for the permanent establishment or the branch.