New transfer pricing documentation and country-by-country reporting rules proposed in Sweden

On December 6^th, the Swedish government proposed transfer pricing documentation and country-by-country (CbC) reporting rules to the Swedish Parliament. The proposal may be accessed in full here (Swedish). As a general comment, the proposed rules broadly follow the BEPS Project (Action 13) and the EU directive on CbC reporting.

CbC Reporting

According to the proposal, the CbC rules will be implemented in Sweden and will require large multinational companies to file a report covering various key figures, such as revenues, profits (or losses) before income tax, income tax paid on a cash basis, number of employees, etc., on an aggregate basis per jurisdiction. Further, the CbC report must also contain information about each group entity’s business activities in each jurisdiction.

Thresholds and due dates

The rules are proposed to enter into force on April 1^st, 2017, with the first reporting year starting January 1^st, 2016 (FY16). The due date for filing the CbC report is within one year after the end of the reporting year, and as such, the first filing will be required by December 31^st, 2017 at the latest, covering FY16.

It should also be noted that all entities belonging to a group subject to these CbC rules will have to notify the Swedish Tax Authority about the identity and jurisdiction of the group entity which will file the CbC report. As a main rule, this notification must be done before the end of the reporting year. However, for reporting years ending before April 1^st, 2017 the notification deadline has been extended to April 30^th, 2017.

Please be advised, that as per December 7^th, no formal procedure is in place and that the Swedish Tax Authority has asked companies not to make any notifications at this stage. The Swedish Tax Authority will communicate the formal procedure on their website when legislation is in place.

A SEK 7 billion revenue threshold will be applied for filing the CbC report for Swedish head-quartered groups for the year before the reporting year. As such, the revenues in FY15 will determine whether the group should file a CbC report covering FY16 or not. Foreign groups will be exempt from the CbC report if the ultimate parent is exempt from filing a CbC report due to similar thresholds in its local jurisdiction.

Transfer pricing documentation

The transfer pricing documentation rules will be applicable for financial years starting after March 31^st, 2017. This means that for most companies, the first financial year under the proposed rules will be the financial year starting January 1^st, 2018 (FY18).

The proposed rules introduce the two-tiered BEPS Action 13 approach with the “master file / local file” template. Under this approach, companies must prepare a master file common for the whole group, and several local files specific for each entity within the group.

The rules also introduce two new thresholds. The first threshold is for preparing transfer pricing documentation, and comprises groups with less than 250 employees, and either:

• a revenue lower than SEK 450 million, or
• total assets not exceeding SEK 400 million

These will be exempt from the documentation rules.

Further, there is a threshold with regards to “immaterial transactions”, which do not have to be documented in detail. Total transactions with a counter-party less than SEK 5 million during a financial year will now always be considered as immaterial unless the transactions are related to non-immaterial intangible property.

Regardless of the thresholds mentioned above, transactions must still be at arm’s length.

Comments

Companies should prepare for filing the CbC notifications as soon as the Swedish Tax Authority issues more formal guidance. Also, even though the master file / local file documentation template only will be in force for financial years starting on or after April 1st, many other countries have already adopted this documentation standard. As such, to be globally compliant, it would be wise to consider drafting documentation in line with the new documentation rules, as these will also satisfy the current Swedish documentation rules.