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May 24, 2021

Sweden: Open disclosures may be used to manage risks of tax penalties due to COVID-19 related transfer pricing adjustments

During the ongoing pandemic, many enterprises have seen impacts on revenues as well as supply chains, requiring them to address these issues in different ways and in many cases to make changes to how they operate.

From a transfer pricing perspective, the pandemic has created various challenges including that there may have been changes to the functions, assets and risks of companies involved in intercompany transactions. Furthermore, the reliance on benchmarking data from years prior to the year under review may not be appropriate in light of the effects of the pandemic. The effect of the pandemic may also cause other comparability concerns.

Therefore, the pandemic is expected to have implications for how transfer pricing documentation should be prepared. It may in addition be appropriate for Swedish taxpayers to address COVID-19 related transfer pricing issues in their corporate income tax returns (see further below).

Accordingly, taxpayers should consider the following factors regarding how risks relating to transfer pricing may be managed in a Swedish compliance context.

Tax penalties in the case of transfer pricing adjustments

The standard penalty for income adjustments imposed by the Swedish Tax Agency is 40% of the additional tax caused by the adjustment. This applies to all adjustments, including those for transfer pricing. If there is no taxable income due to the adjustment being set off against losses, then the standard penalty amounts to 10% of the income adjustment.

Transfer pricing documentation generally provides partial protection against tax penalties

Sweden follows the standard Organisation for Economic Co-operation and Development master file/local file approach to transfer pricing documentation. Transfer pricing documentation may, subject to certain requirements on the documentation, provide protection against 50% of the standard penalty in the case of a tax adjustment. This requires that the documentation: (i) accurately reflects the intra-group transactions of the Swedish taxpayer; and (ii) that the methodology applied does not in any significant way deviate from generally accepted views regarding transfer pricing.

An open disclosure may offer additional penalty protection and shorten the statute of limitations

Added penalty protection may be achieved by providing additional information in an appendix to the tax return (open disclosure). Such an open disclosure of a specific issue may also result in the statute of limitations being two years instead of the standard six years. An open disclosure may offer protection independently of the transfer pricing documentation. An open disclosure is the standard way of managing risk for tax penalties in Sweden.


Where a difficult transfer pricing issue has been identified, taxpayers should consider whether to openly disclose the issue in the tax return. For many taxpayers, the COVID-19 pandemic will have generated such difficult issues.


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

Ernst & Young AB, Stockholm


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