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Sweden: Benchmark analysis and arm’s length determination (transfer pricing court case)

Sweden: Benchmark analysis, arm’s length determination

The Swedish Supreme Administrative Court (Högsta förvaltningsdomstolen) recently issued a decision concerning the use of multiple-year analysis and the use of the full range or interquartile range result of a benchmark analysis.


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The Swedish tax authority determined that the transfer prices applied on transactions between a Swedish parent company and its U.S. subsidiary, with respect to distributions of the taxpayer group’s products in the U.S. market, were not arm’s length. The Swedish tax authority’s findings were based on the transfer pricing documentation prepared for the U.S. subsidiary for FY 2007, for which the TNMM method showed that the operating margin for FY 2005-2007 was above the interquartile range of the benchmark analysis. Based on this transfer pricing documentation, the Swedish tax authority concluded that the transfer prices were not at arm’s length and accordingly increased the taxable profit of the Swedish company.

The taxpayer sought judicial review of the tax authority’s findings, and the Administrative Court determined that a multiple-year analysis including FY 2007-2008 must be applied and that the full range result of the benchmark analysis could be applied, and not only the interquartile range.

The Swedish tax authority appealed to the Administrative Court of Appeal, and the appellate court reversed the decision of the lower court. The Administrative Court of Appeal determined that when analyzing the arm’s length result, both transacting parties must compare the same set of years. The appellate court looked to the OECD Transfer Pricing Guidelines to find that care must be exercised when including years after the transaction year into the analysis.

The Administrative Court of Appeal held that the analysis can be based on multiple-year data including the transaction year and previous years. With respect to the question of the use of interquartile range or full range of the benchmark analysis, the appellate court concluded that the transacting parties must use the same range and because the U.S. subsidiary had used the interquartile range in the transfer pricing documentation, the interquartile range must also be used by the Swedish company. Read TaxNewsFlash

Supreme Administrative Court

The Supreme Administrative Court reversed the decision of the appellate court, and upheld the findings of the Administrative Court.

  • First, the Supreme Administrative Court explained that in a situation of supplementary taxation, the burden of proof rests with the tax authority.
  • Second, the high court looked to prior court cases in which it was concluded that the netting of over/under compensation over a number of years can be acceptable under certain circumstances.
  • Next, the high court acknowledged that Swedish tax authority had used the transfer pricing documentation of the U.S. subsidiary to justify the arm’s length pricing, but had not made an independent analysis from a Swedish perspective. The facts revealed that the taxpayer had made a public announcement of a forthcoming disposal that affected the FY2007 results, and that was adjusted in FY 2008. The high court concluded that this fact was a circumstance that must be considered.
  • Finally, the high court noted that the Swedish tax authority had not showed that the net margin of the comparable companies in the benchmark falling outside the interquartile range would not constitute an arm’s length pricing.

Based on these findings, the high court concluded that the Swedish tax authority had not met its burden of proof.


Read a June 2019 report (Swedish) prepared by the KPMG member firm in Sweden that links to the court case.

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services practice in Sweden:

Karin von Uthmann |  +46 8 723 9249 |

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