Sweden: Salary paid by foreign group companies, tax relief incentives

Sweden: Salary paid by foreign group companies

An administrative court in late April 2017 issued a judgment concerning whether a tax benefit was available, under a tax relief incentive program, when salary paid to foreign executives or expert employees was paid by both Swedish and foreign group companies.

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The incentive regime generally provides that if the salary payments qualify under the program, the employee pays “ordinary” Swedish income tax on an amount equal to 75% of the salary and benefits for the first three years of employment, with the employer paying the employer's contributions on the corresponding amount (when Swedish social security contributions are due).

A recurring issue has been whether amounts of salary and benefits, when paid by foreign group companies, qualify for the tax incentive program. In the instant case, this question was again considered. While the court allowed consideration of the amount of salary paid by Finnish group companies, the court still found that the issue was not resolved as to what is necessary for such payments by non-Swedish entities to be eligible under the incentive program. The court noted that the original goal of the tax relief incentive program was to provide an incentive for companies to place or retain senior management functions in Sweden and that, as such, any related tax deductions would be related to employers (companies) that were residents of Sweden.

In this case, the court took into consideration the content of the employment contract, the agreement among the group companies, the assignment letter, and how the costs of the employment were handled in the group. The agreement between the group companies showed that the Swedish company had delegated part of the payroll payment to the Finnish group companies. The court considered that a key finding was that the remuneration was paid for work performed by the employee for the Swedish employer, and that payment of the salary by the group was of minor importance. The individual was employed exclusively to work for the Swedish company. The court therefore concluded that tax benefit was available, even though the salary was paid through a foreign group company.  

The judgment has been appealed by the Swedish tax agency.

 

Read a May 2017 report (Swedish) prepared by the KPMG member firm in Sweden

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