Transfer Pricing Roadmap

In the autumn of 2018, the Swedish Tax Agency (STA) published a transfer pricing roadmap (in Swedish) on its external web page. Two years later the STA published the roadmap in English.

The purposes behind publishing the roadmap were to facilitate the cooperation between the STA and its customers (companies and permanent establishments), to clarify the expectations and requirements during an audit and to enhance the dialogue and transparency (predictability) during an audit.

The roadmap covers essentially three stages; 1. The STA starts an audit, 2. Performs and audit and 3. Concludes an audit. The aim is to provide a guide to how the STA perform such audits from the moment they begin until they are finalised.

The STA applies the methodology in the OECD Guidelines on how to approach transfer pricing issues. The full name of OECD Guidelines is “OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations”, usually shorten as OECD Guidelines or the Transfer Pricing Guidelines (TPG). According to the OECD Guidelines, the application of the arm’s length principle is based on a comparability analysis (with nine steps (first and second aspect), see 1.33 in the TPG). When it comes to attribution of profits to permanent establishments, the STA uses the “Report on the Attribution of Profits to Permanent Establishments” for guidance. It should be noted that the OECD profit allocation report also refers to the OECD Guidelines when pricing dealings with a permanent establishment. The nine-step approach is at the heart in stage 2.

Before the STA issue the audit decision, we prepare a draft timetable setting out the various steps of the audit. The STA discuss this preliminary timetable with the company during the first phone call and the first meeting. It is important that the company (or the Permanent Establishment) and the STA agree on a timetable considering reasonable and achievable timescales and expectations. The timetable is always a shared commitment.

During the comparability analysis, it is clear for every step what kind of information the STA is looking at and how it is gathered (sources of information). The roadmap emphasis the need for cooperation to clarify the facts and circumstances for the actual transaction/dealing. Since facts and circumstances varies from case to case it is a win-win situation to be detailed and transparent. This can reduce uncertainties and in the future ease a potential a Mutual Agreement Procedure (MAP) for the Competent Authority.

During the examination, the STA has a number of predetermined risk assessments. These take place after step 2, step 3 and step 9 in the comparability analysis. The aim of an assessment is to summarise and analyse the facts up to that particular point and to use available information to update the risk assessment. Several indicators may affect the risk of mispricing at each stage. At all times the STA need to take various facts and circumstances into consideration when analysing a potential mispricing.

After each review, the STA provide feedback to the company. The purpose of the feedback is to:
• describe the Tax Administration’s conclusions
• ask any additional questions to the company
• confirm the transactions under review
• discuss next steps and propose a reasonable timetable.

In addition, the company has the opportunity to give its view on the conclusions made by the STA. The STA normally provide the feedback by telephone or, where appropriate, at a face-to-face meeting. See: https://www.skatteverket.se/foretagochorganisationer/skatter/internationellt/internprissattningochvinstallokering.4.3dfca4f410f4fc63c8680005982.html