The first step was to make an international comparison of the rules in relevant, comparable OECD countries.
An overall assessment showed the Swedish transfer pricing rules do not put more burden on taxpayers than comparable countries rules.
Other countries tend to have more detailed rules, an information duty in the tax return and sanctions in case of omissions in the documentation. However, some countries have excluded small and medium sized companies from the information duty, while Sweden only allows those companies to provide simplified documentation for transactions of minor value.
The Tax Agency also assessed the proposed documentation changes presented in the guidance on transfer pricing documentation and country-by-country reporting, which is the result of the Base Erosion and Profit Shifting (BEPS) Project, Action 13.
The Tax Agency has concluded that the Swedish documentation rules do not support the proposal. There is no support to require filing of some parts of the proposed documentation in the way that the OECD suggests. As a consequence, the requested information cannot be used as a risk assessment tool for the determination of where audit resources can most effectively be deployed.
The second step was to analyse the application of the Swedish rules. In order to do so, the Swedish Tax Agency sent anonymous questionnaires to companies, and interviewed tax consultants, trade organisations and employees at the Swedish Tax Agency with transfer pricing experience.
They concluded that the current rules function relatively well and companies seem to have routines of how to prepare the documentation.
The rules have also resulted in an increased transfer pricing awareness by companies. However, some companies said they consider the rules to be difficult, theoretical, and extensive and that the compliance costs have increased, both the internal and external. It was also pointed out that it is important the Swedish rules are consistent with the OECD transfer pricing guidelines.
The Tax Agency has concluded that the documentation requirements have facilitated the audit process.
However, the administrative burden for the Agency is high when companies do not provide documentation. The reason is that the Agency still holds the burden of proof to show that the pricing is not at arms-length, at the same time as it lacks means of exerting pressure to require a filing of the documentation. The Agency also said a lack of documentation requirements for permanent establishments tends to cause issues for the Agency when conducting assessments.
The review resulted in proposed changes by the Tax Agency. It proposes the Swedish rules should be changed in a way that is consistent with the forthcoming OECD transfer pricing guidelines on documentation.
It is also stressed that these changes should be made, to the extent it is possible, in line with the changes in other countries that are important from a Swedish perspective.
By Annika Lindström, Tax Partner and Transfer Pricing Country Leader at KPMG Sweden