BEPS – The Tax Agency’s explanation regarding changes in transfer pricing

The Tax Agency states in their explanation of the proposed changes found in the BEPS action plan, Actions 8-10 regarding OECD’s transfer pricing guidelines, that these changes comprise only a further clarification of the arm’s length principle. The Tax Agency is, then, of the opinion that these new changes and supplements should apply retroactively.

As we have previously commented upon in this blog, a lot of the work within the BEPS project (Actions 8 -10) has been focused on further refining the application of the arm’s length principle to better reflect actual value creation within multinational groups. This has been done through an extensive revision of the transfer pricing chapters within the OECD’s guidelines.

The Tax Agency is of the opinion that all of these changes and supplements proposed within the framework of Actions 8-10 comprise only a further clarification of the previous regulations for application of the arm’s length principle. As, according to the Tax Agency, this is not a question of any new regulations, the revised OECD’s guidelines are to also be applied retroactively in assessing previous years’ reported intra-group transactions.

The contents of the BEPS report will be integrated into the Tax Agency’s legal documents in the section Transfer Pricing during the spring of 2016. Until that point in time, the Tax Agency believes that the report is to be applied in parallel with the current Transfer Pricing section found in the Tax Agency’s legal guidance.

Comments

The Tax Agency’s position was already notified at an information meeting regarding the results of the BEPS work which was held at the beginning of December.

That the new guidelines can be applied henceforth, to the degree they are not in conflict with Swedish law and legal practice, should be obvious, and this also follow’s OECD’s statement that the new guidelines should be seen to apply immediately.

However, the retroactive application advocated by the Tax Agency is doubtful, and should be assessed in relation to the Swedish statutory principle of legality. The Tax Agency refers to the changed guidelines in Swedish as “förtydligande” in nature, which in English generally means “clarifying”. However, the OECD, itself, refers consistently to the proposed changes in the guidelines as “revisions”, and this is a term which is usually translated into Swedish as “ändringar” (in English, “changes”). The new guidelines are referred to by the OECD as “the revised guidelines”, and this should most appropriately be translated into Swedish as “de ändrade riktlinjerna” (in English, “the changed guidelines”). That the Tax Agency refers to all of the proposed changes as only “clarifications”, and believes that all of them are, therefore, to be applied retroactively, would appear to comprise an unacceptable degree of license in interpreting their nature and meaning.

It should be mentioned in this context that the changed guidelines regarding transfer pricing to which the Tax Agency refers as being retroactively applicable, are not yet in effect and are still not a part of the OECD’s guidelines for transfer pricing. The reason for this is that the changes are to be formally approved by the OECD’s decision-making body, the Council of Ministers. However, such approval is expected in the near future.