March 1st, the parliament adopted the government’s proposal on transfer pricing documentation and country-by-country reporting. The adoption amounts to the ratification of OECD’s guidelines for transfer pricing documentation and country-by-country reporting in Swedish tax legislation.
Within the framework of the OECD BEPS-work (Base Erosion and Profit Shifting), the OECD has presented an action plan in order to prevent base erosion and profit shifting. One of these action points is Action 13, which has resulted in new rules on transfer pricing documentation and a new country-by-country reporting documentation for multinational companies.
New transfer pricing documentation requirements
The new transfer pricing documentation legislation corresponds to the proposal from the Swedish Tax Agency and OECDs model legislation. The new legislation comes into effect as of April 1st, 2017, and the new documentation rules shall be applied for financial years starting after March 31st, 2017.
The new legislation has extended the documentation requirement to also include Swedish partnerships and permanent establishments in Sweden. However, individuals, small and medium-sized enterprises are excluded from the documentation requirement. Multinational groups with fewer than 250 employees and an annual turnover of less than SEK 450 million or a balance sheet total less than SEK 400 million count as small and medium-sized enterprises and are therefore exempt from this requirement. Consequently, the following companies are covered by the documentation requirement:
- Companies that are part of a multinational group with more than 250 employees and,
- Companies that are part of a multinational group with an net sales in excess of SEK 450 million, and a balance sheet total in excess of SEK 400 million.
The new documentation rules require multinational groups to prepare a group-wide Master File, including an overview of the Group and its activities, important key value adding factors, description of the Group’s most traded products, key geographic markets, description of the intra-group service functions as well as detailed information on the group’s intangible assets.
Furthermore, a Local File is required for each legal entity in their local jurisdiction. The Local File focuses on a more detailed description of the individual company’s business, including, detailed information about the company’s management, the company’s business strategy, detailed information about the company’s intra-group transactions, detailed functional and comparative analyses and a description of the applied pricing methodology.
Similar to the previous legislation, multinational groups are only obligated to submit the transfer pricing documentation upon request by the Swedish Tax Agency. However, the new legislation requires the taxpayer to have a contemporaneous documentation and the documentation needs to be available at the time of the tax return.
The new country-by-country reporting legislation comes into effect as of April 1, 2017. A multinational group with an annual group consolidated revenue exceeding 7 billion SEK shall, within 12 months after the end of the financial year submit certain financial data about their business for each tax jurisdiction in which the group operate, on an annual basis. A country-by-country report shall, for the first time, be provided for the financial year beginning after December 31st, 2015. All Swedish entities and foreign permanent establishment within a multinational group in Swedish shall notify the Swedish Tax Agency which entity within the group that is submitting the country-by-country report.
For the first financial year covered by the country-by-country legislation, the parliament has extended the notification period to April 30th, 2017, for financial years ending before the legislation becomes effective. The Swedish Tax Agency has asked companies not to send them the notification until further instructions.
What does this mean for an MNE?
New documentation requirements
The new transfer pricing documentations legislation amounts for more extensive content requirement for the transfer pricing documentation. However, fewer Swedish multinational groups are subject to the new documentations requirements. Multinational groups that no longer are covered by the documentation requirement should not forget that it is still important that the transactions should be at arm's length. A contemporaneous documentation, and a good transfer pricing policy facilitates this and improves the situation in any future audit. Note that multinational groups can be obligated to provide transfer pricing documentation in foreign countries where they operate.
The parliament did choose to implement the new legislation later than previously suggested. However, this latter implementation of the rules will have a minimal impact, since the main body of the other countries already have adopted the new documentation legislation in accordance with the BEPS model legislation. This means that multinational companies operating in countries other than Sweden, will probably have to report according to the prevailing BEPS rules from the fiscal year 2016.
As mentioned, the new legislation implicates that specific defined multinational groups must report certain information about their business in each tax jurisdiction in which they operate in. Swedish entities and foreign permanent establishment within a multinational group in Swedish shall notify the Swedish Tax Agency about which company within the group that is going to submit the country-by-country report. Now it is time for multinational groups to ensure which tax agencies to notify, when and how the notification should be submitted and finally notify the appointed tax agencies
Pär Magnus Wiséen arbetar på skatteavdelningen på PwC:s kontor i Stockholm med internprissättning och frågor som uppstår i samband med omstruktureringar och förändringar inom större koncerner.
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