Under Swedish regulations, a foreign legal entity has to pay Swedish income tax in case the entity has PE in Sweden. Generally, a PE is defined as a fixed place from where the entity carries out its business, wholly or partially in Sweden.
Company Alpha (Alpha Co.) and its subsidiary Beta (Beta Co.) were considering setting up a server in Sweden from which software would be supplied to group companies. Beta would house the server in a rented facility in Sweden. Alpha Co. would store its fully owned software on that server. Beta Co.’s main activity would mainly include managing the server and software stored on the server. With the exception of the server location, all business activities and decision-making would be carried out in Beta Co.’s and Alpha Co.’s place of business, outside of Sweden.
As per the advance ruling, Alpha Co. would not be considered to have a PE in Sweden. However, Beta Co.’s activities of managing the server and its software are beyond “preparatory or auxiliary work” and thus would be considered to have a PE in Sweden.
This advance ruling, which is subject to an appeal, may have on impact on foreign companies operating in Sweden who currently do not recognise a permanent establishment there. Foreign companies planning to locate a server in Sweden should consider whether their Swedish operation could be structured in such a way that the provision of the server will be considered a ‘preparatory or auxiliary’ activity and therefore below the threshold for creating a taxable presence.
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