Sweden: Annual recurring activities deemed a permanent establishment

Sweden: Annual recurring activities

A Swedish Administrative Court of Appeal issued a decision in a case regarding permanent establishments, and concluded that a German company that regularly conducted business from the same place in Sweden (albeit for a limited period of time) was deemed to have a permanent establishment.

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Background

The case concerned a German company that developed and sold software for tire inflation pressure systems. The company annually performed tests in winter conditions in the north of Sweden, and brought all of the equipment (cars) from Germany. The test results were then used for software development in Germany. The annual testing period ranged from three to four months, but the company was only “on site” for a few weeks at a time.

Court decision

The appellate court found that:

  • The company regularly conducted business from the same place in Sweden. 
  • The tests in Sweden could not be considered to be of a preparatory or auxiliary nature.
  • The company was considered to have a fixed place of business in Sweden through which part of the company’s core business was conducted—hence, a permanent establishment.

KPMG observation

In this case, the income tax payable in Sweden was very limited in relation to the company’s size. However, being found to have a permanent establishment and being liable for tax in Sweden increased the administrative burden on the company (additional registration and filing requirements both for the company and its employees with the tax liability measured from first day of work in Sweden).

In light of this decision, foreign companies that have annually reoccurring activities in Sweden need to consider whether these activities give rise to a permanent establishment in Sweden.

 

Read a November 2016 report prepared by the KPMG member firm in Sweden

 

For more information, contact a KPMG tax professional in Sweden:

Daniel Fridell | +46 40 35 62 06 | daniel.fridell@kpmg.se

Louise Hemmestad | +46 8 723 61 09 | louise.hemmestad@kpmg.se

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