We have previously published articles regarding the Government’s proposal to introduce the term “economic employer” in Sweden. In May 2018, the Council on Legislation presented its exposure draft and it has now presented a supplementary proposal as regards certain intra-group situations.
The original proposal implies that a larger number of employees employed by foreign companies will be liable to taxation in Sweden. The intention with the proposal is that the 183 day rule will not apply when it is a question of hiring out of labour from a foreign company to a Swedish company. By “hiring out of labour” is meant that an employee is directly, or indirectly, contracted, or is made available, to an employer (principal) to execute work duties in that principal’s operations in Sweden, and that this work is performed as an integrated part of the principal’s operations.
The Government has now produced a supplementary proposal. This has been done as it has been concluded that the proposed legislation would impact certain intra-group situations in a manner which was not intended. This could, for example, refer to cases in which the employee is, formally, employed in a group company in another country than Sweden, where he or she works and also resides, but where he or she is managed by and under the control of a Swedish group company. The Swedish group company is then to be seen as the economic employer. As long as the work is executed in the country of residence, the income is taxed only in that country, but as soon as the individual works in Sweden, tax liability incurs in Sweden, even if it is only a question of one day of work in Sweden. The intention with the proposed legislation has not been to levy income tax in Sweden when such an employee is physically in Sweden during a short period of time.
In order to clarify that these intra-group situations are not to be covered by the new rule, in certain cases. even if the other circumstances at hand would indicate that the Swedish company is the economic employer. This applies if the work in Sweden is executed during a maximum of five, consecutive days, however, at a total maximum of 30 days during one calendar year, and if the principal and employer belong to a group of the nature stipulated in Chapter 1, § 3 of the Annual Accounts Act.
In simple terms, the Annual Account Act’s definition implies that if a company, parent company, amongst other things, owns more than fifty percent of the votes in another legal entity, for example, a subsidiary, then the companies are seen to belong to the same group. Foreign groups are also included in this definition. Foreign groups are also covered if the companies establish relationships between each other equivalent to the relationships stipulated in the Annual Account Act.
Note that the Council’s draft exposure contains some examples of how the assessment of who is to be seen as an economic employer in certain situations. One example refers to so-called intra-group work, that is, the situation in which employees in various functions in different companies within a group work under the management and control of managers who are employed in other countries and by other companies within the group. This example evidences that the term economic employer should not always be applied in cases where groups are involved. For example, a company in Norway and a company in Sweden belong to the same multinational group. One portion of the group’s operations require that the employees in varying functions in different companies work under the management of managers who can be employed in other countries and are employed by other companies within the group. One employee at the company in Norway is responsible for the management and control of the group’s HR function, which is a central function for the group and, as a result, this person travels regularly to the other companies within the group, for example, to the company in Sweden. The company in Norway invoices the costs to the other companies within the group based on a calculation which takes into consideration a number of various factors, such as, the number of employees. The work executed by the employee in Sweden is an integrated part of a central group function and is executed on behalf of the group and is not a specific assignment on behalf of the company in Sweden. The company in Norway is seen as the employee’s employer during the period during which he executes work in Sweden. The employee should in this situation not be taxed in Sweden as long as the employee is not present in Sweden more than 183 days during twelve months period.
The new supplementary proposal does not imply a decrease in administration in terms of keeping control of the number of days employees are in Sweden during one given visit and during one year. However, one does avoid the administration associated with being taxed in two countries.
It can also be difficult to assess when it actually is a question of an economic employer when it regards employees performs work/services for several group companies. Feel free to contact us if you need assistance with this assessment.
Johanna Glimmerbeck och Hanna Ekelund arbetar på PwCs: kontor i Örebro respektive Stockholm med individbeskattning och frågor i internationell kontext och är särskilt specialiserade kring arbetsgivarfrågor vid gränsöverskridande personal.
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