Since the Diligentia case in 2010 the Swedish Tax Agency has reconsidered the assessments for a large number of companies having substantial loans, the interest of which were paid to non-Swedish lenders. The Swedish Tax Agency based its reasoning mainly on the concept of control as used in the Diligentia case. While relying on the concept of control, the Swedish Tax Agency appeared to have forgotten one of the most important prerequisites for the arm’s length principle, namely that the terms of the controlled transaction should be compared to those of a uncontrolled transaction, i.e. a transaction between two unrelated parties.
The companies in question appealed the decision to the Administrative Court. The main arguments used were (i) that a prerequisite for the arm’s length principle is that the controlled transactions shall be compared to similar uncontrolled transactions and (ii) that the Swedish Tax Agency had not met its burden of proof requirement.
The companies were unsuccessful in the Administrative Court. A significant number of cases were appealed to the Administrative Court of Appeal, where the companies were successful.
To date the Swedish Tax Agency has applied for leave to appeal with the Supreme Administrative Court in five cases. The Supreme Administrative Court has now decided in all five cases and has rejected the requests for leave to appeal.
Arguably, the Supreme Administrative Court decisions should mean that the Swedish Tax Agency is likely to take a more reasonable position on the matter of determining market interest rates on intercompany loans in accordance with the arm's length principle.