Sweden – Court Finds German Company Had PE from Recurring Short-Term Activities

Sweden – Court Finds German Company Had PE from

This GMS Flash Alert reports on a decision issued by the Swedish Administrative Court of Appeal in a case regarding permanent establishment.

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A Swedish Administrative Court of Appeal has issued a decision in a case regarding permanent establishment involving a German company that was considered to have a fixed place of business in Sweden because a part of the company’s core business was being carried out in Sweden.1  The Court determined the company had created a permanent establishment (“PE”).

WHY THIS MATTERS

While the income tax payable in Sweden in this case was very limited in relation to the company’s size, the resultant tax liability which occurred because it was deemed to have a PE created an unexpected cost for the company, not to mention a reputational risk due to its non-compliance – however unpremeditated – with Sweden’s tax rules regarding PE.

Furthermore, being deemed to have a PE and being liable for tax in Sweden also brings administrative burdens such as registration and filing requirements both for the company and its employees. 

Background

The case concerns a German company that develops and sells software for tire inflation pressure systems. The company annually performs tests in winter conditions in the north of Sweden and brings all of the equipment (e.g., cars, etc.) from Germany. The test results are then used for software development in Germany. The testing period is around three to four months but the company is only on site for a few weeks at a time. 

How Court Ruled

The findings of the Court were that the company regularly conducts business from the same place in Sweden.  The Court also stated that the tests in Sweden cannot be considered to be of a preparatory or auxiliary nature, therefore the company had established a fixed place of business in Sweden through which a part of the company’s core business was carried out. 

KPMG NOTE

To foster proper tax compliance, we recommend that foreign companies with recurring activities in Sweden work with their qualified tax professionals to analyze whether these activities might give rise to a PE in Sweden.   

FOOTNOTE

1  Administrative Court of Appeal in Gothenburg (Kammarrätten i Göteborg) case number 2276-15.   

CONTACTS

For additional information or assistance, please contact your local GMS or People Services professional or one of the following professionals with the KPMG International member firm in Sweden:

 

Daniel Fridell

Tel. +46 40 356 206 

Daniel.fridell@kpmg.se 

 

Louise Hemmestad 

Tel. +46 8 723 6109 

Louise.hemmestad@kpmg.se 

The information contained in this newsletter was submitted by the KPMG International member firm in Sweden.

© 2017 KPMG AB, a Swedish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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