Executive summary

The Swedish Government has submitted a bill to the Swedish Parliament for approval of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI), along with the Government's positions regarding Sweden's choices and reservations. The Parliament's approval is required in order for Sweden to ratify the MLI.

The MLI will enter into force on 1 July 2018 as five jurisdictions have now deposited their instruments of ratification with the Organisation for Economic Co-operation and Development's depository.¹ From a Swedish perspective, however, it is necessary to also amend the laws which have implemented tax treaties into Swedish domestic law, in order for the provisions to become applicable in Sweden. The bill that was submitted to Parliament on 15 March 2018 does not contain any proposed changes to these laws as not all of the relevant jurisdictions have ratified the Convention yet. Instead, the Swedish Government intends to come back to the Parliament regarding the necessary changes concurrently as the relevant jurisdictions ratify the Convention. It is therefore not possible to provide a date for the entry into force of the MLI's provisions in Sweden.

Detailed discussion

Jurisdictions

Sweden has approximately 80 comprehensive income/capital tax treaties and has notified that it wishes 64 of these to be Covered Tax Agreements (CTAs) under the MLI. As of February 2018, 39 of these countries have correspondingly signed the Convention and listed the agreement with Sweden as a CTA. Accordingly, there are 39 so-called "matching agreements" with the following jurisdictions: Argentina, Armenia, Barbados, Belgium, Bulgaria, Canada, Chile, China, Cyprus, Czech Republic, Egypt, Georgia, Greece, Hungary, India, Ireland, Israel, Italy, Jamaica, Japan, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, the Netherlands, New Zealand, Nigeria, Pakistan, Poland, Romania, Slovakia, South Africa, Tunisia, Turkey and the United Kingdom (UK).

Sweden's choices and reservations

In the bill presented to the Parliament, the Government proposes that Sweden choose the following provisions:

• Article 6 (Purpose of a Covered Tax Agreement)
• Article 7 (Prevention of Treaty Abuse – Sweden choses to comply with the minimum standard through the Principal Purpose Test)
• Article 16 (Mutual Agreement Procedure)
• Article 17 (Corresponding Adjustments)
• Articles 18-26 (Mandatory Binding Arbitration – see more details below)
• Article 35(7) (Reservation regarding the entry into effect of the provisions of the Convention – Sweden choses to replace the reference to "taxable periods beginning on or after the expiration of a period" with a reference to "taxable periods beginning on or after 1 January of the next year beginning on or after the expiration of a period").

The Government proposes that Sweden should make reservations with respect to the other provisions of the MLI.

Mandatory binding arbitration

With respect to mandatory binding arbitration, Sweden currently has 13 agreements which are preliminarily covered by the MLI where both jurisdictions have chosen the provisions on arbitration. Sweden has made a reservation on the "final offer" type of arbitration and has chosen to apply the "independent opinion" approach. Out of the 13 countries, 2 have chosen the "final offer" arbitration. In addition, Sweden and Japan have chosen to apply the current arbitration rules in the Sweden-Japan tax treaty instead of the arbitration provisions of the MLI. This means that the arbitration provisions should eventually become applicable in relation to the following 10 countries: Barbados, Belgium, Greece, Ireland, Luxembourg, Malta, Mauritius, the Netherlands, New Zealand and the UK.

Finally, it is of interest to note that Sweden has formulated three reservations. In addition to the two initial reservations under Article 28 of the MLI (regarding dual resident legal entities and cases that the competent authorities agree are not suitable for arbitration),² the Government proposes a third reservation regarding so-called "hard-to-value intangibles." The reservations require acceptance from the other party to the agreement.

Entry into effect

In order for the provisions to enter into force in Sweden, it is necessary to amend the laws through which the Swedish tax treaties have been implemented. The Swedish Government intends to come back to the Parliament regarding the necessary changes concurrently as the relevant jurisdictions ratify the MLI. Therefore, it remains to be seen when the MLI's provisions will enter into force in Sweden in relation to the "matching agreements."

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ENDNOTES

¹ See EY Global Tax Alert, BEPS Multilateral Convention will enter into force on 1 July 2018 for the first five jurisdictions, dated 23 March 2018.

² http://www.oecd.org/tax/treaties/beps-mli-position-sweden.pdf.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young AB, Stockholm

• Erik Hultman
  erik.hultman@se.ey.com
• Rikard Ström
  rikard.strom@se.ey.com
• Dunja Edvinsson
  dunja.edvinsson@se.ey.com

Ernst & Young LLP, Nordic Tax Desk, New York

• Antoine Van Horen
  antoine.vanhoren@ey.com
• Susanne Hamre Skoglund
  susanne.skoglund@ey.com
• Nicole Maser
  nicole.maser1@ey.com

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ATTACHMENT

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