Application for the elimination of international double taxation

Mutual Agreement Procedure (MAP)

Competent authorities shall endeavour to eliminate double taxation or other taxation not in accordance with a tax treaty, within the framework of a MAP, but they are not obliged to find a solution according to Article 25.2 of the model tax convention published by the Organisation for Economic Co-operation and Development (OECD). However, some tax treaties include specific provisions that confer the right to arbitration if the competent authorities are unable to reach a mutual agreement.

A taxpayer has the option to apply to the Swedish competent authority for a MAP to be initiated, by referring to the EU Arbitration Convention (90/436/EEC), (“Arbitration Convention”) if the double taxation is within the EU and concerns transfer pricing or attribution of profits to a permanent establishment. A MAP based on the Arbitration Convention offers the opportunity for arbitration in certain cases, i.e. it obliges the competent authorities to find a solution to eliminate double taxation.

The taxpayer can also apply to the Swedish competent authority for a MAP to be initiated if the double taxation has occurred within the EU on income earned on or after 1st of January 2018 by referring to Act “lag (2019:601) om tvistlösningsförfarande i ärenden som rör skatteavtal inom Europeiska unionen” that is based on the EU Dispute Resolution Directive (2017/1852), (“the EU Directive”). According to the EU Directive the taxpayer can request the competent authorities to set up an Advisory Commission if (i) a competent authority decides to reject a complaint or (ii) the competent authorities fail to reach a mutual agreement. The Advisory Committee shall in such cases (i) adopt a decision on the acceptance of the complaint and (ii) deliver an opinion on how to resolve the issue in dispute.

• Swedish legislation (2019:602) on dispute resolution in cases concerning tax treaties within the European Union incorporates the Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union External link.

Here are some examples of double taxation situations that can be eliminated within the MAP framework:

• An individual subject to unlimited tax liability in Sweden who is also considered to be resident in another country. Both countries claim to have the taxing right over the same income earned by the individual.
• The income of a foreign company has been adjusted by a foreign tax agency, since transfer prices on for example goods or services from a Swedish associated enterprise were not set in line with the arm´s length principle according to the foreign tax agency.
• The Swedish Tax Agency has adjusted the income of an associated enterprise, as, according to the Swedish Tax Agency’s consideration, the cross border transactions with other enterprises did not take place on regular open market commercial terms, i.e. not on an arm’s length basis.
• A Swedish enterprise performs business activities in another country. The tax agency in that other country claims that the local business activities constitutes a permanent establishment in that country and that some profits must be attributed to the permanent establishment. The Swedish enterprise does not share the foreign tax agency’s view that a permanent establishment has been created nor that any profits should be attributed to the other country.
• A tax agency in another country has withheld an excessive amount of withholding tax on dividends, interest or royalties.
  

Brief outline of the procedure

Below is a brief outline of the procedure that is followed when a taxpayer seeks assistance from the concerned competent authorities to eliminate the double taxation.

The first step to initiate a mutual agreement proceeding is to submit a MAP-request to the competent authority. The competent authority will then assess whether the application appears to be justified and, if so, attempt to resolve the matter unilaterally. If the competent authority is not able to solve the matter unilaterally, then it will engage the other competent authority and endeavour to resolve the matter by a mutual agreement.

The taxpayer is not involved in the MAP negotiations between the competent authorities. However, the taxpayer is invited to submit documentation and comments to the competent authorities and is often requested to provide additional information throughout the proceedings.

The Swedish Tax Agency will make the appropriate adjustments in the Swedish taxation if a mutual agreement results in a decision to reduce tax in Sweden, i.e. there is no need for the taxpayer to submit a new income tax return as a result of the MAP.

A mutual agreement that is reached based on the EU Directive requires that a summary of the final decision is published on the Swedish Tax Agency’s website. The competent authorities may also agree, under the EU Directive procedure, that the taxpayer must pay all the costs that are related to the independent persons at the Advisory Commission if (i) the taxpayer decides to withdraw the MAP-request, or (ii) an Advisory Commission is set-up and the Commission decides that the previous rejection of the MAP-request by the relevant competent authorities was justified.

Time limits

According to many tax treaties, which are often based on the model tax convention published by the OECD, an application must be made “within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention” (Article 25.1 of the OECD Model Tax Convention on Income and on Capital). In the Nordic tax treaty, the time limit is five years.

A three-year limit is also specified in the Arbitration Convention, and in the EU Directive. This means that the start of this three-year time limit period is normally determined by the date of the decision of the Swedish Tax Agency, or the tax agency in the other country, to adjust the taxation of a taxpayer’s income. The time limits must be also considered when a taxpayer decides to appeal the decision made by the tax agency to the court.

Not all tax treaties include a three-year time limitation rule. It is therefore very important to refer to the specific time limitation rules that are stated in the applicable tax treaty.

A MAP-request may be submitted to the competent authority before a formal decision is made by the involved tax agency, for example an upward income adjustment in Sweden.

Parallel proceedings

It is possible to apply for a MAP in Sweden even if:

• the issue is subject to ongoing domestic judicial proceedings in Sweden
• an application has been submitted for a ruling from the Swedish Board of Advance Tax Rulings (“Skatterättsnämnden”)
• a court in Sweden has already ruled on the matter

It should be noted that a submission of a MAP-request that is based on the EU Directive will result in the closure of all other ongoing mutual agreement procedures related to the dispute.

Payment respite

A taxpayer may apply to the competent authority to defer paying the tax in connection with the submission of a MAP-request. The payment respite is intended to mitigate the effects of international double taxation until a mutual agreement has been reached.

For payment respite to be granted in Sweden, the tax due in the other country must already have been paid. A deferral may then be granted for an amount that is equivalent either to the Swedish tax on the disputed income, or to the tax paid in the other country on that income (whichever amount is the lowest). The payment respite applies also to interest charges that has been levied on the tax to which the case relates. In certain situations, respite can only be granted if security is provided for the payment of the tax. Payment respite applies to the tax due and any related tax surcharges (“skattetillägg”).

With regard to India, a special agreement applies that regulates eligibility for tax payment respite while a case is being investigated. The agreement relates primarily to eligibility for payment respite in India. The agreement imposes a requirement for the provision of security in the form of a bank guarantee. Details of the agreement and further information can be found in Appendix 2 to the Act (1997:918) on the double tax treaty between Sweden and India, and in the Swedish government bill 2012/13:89: “Amendment to the tax treaty between Sweden and India and agreement with India on payment respite for taxes” (“Ändring i skatteavtalet mellan Sverige och Indien samt överenskommelse med Indien om anstånd med betalning av skatter”).

Interest and tax penalties

If a mutual agreement is reached in a case that has its origin in a Swedish adjustment where tax surcharge has been levied, and the agreement results in a reduction of the Swedish tax due, then the tax surcharge will be reduced in relation to such a reduction.

If a mutual agreement is reached and results in a requirement for the Swedish Tax Agency to refund tax that has already been paid by the taxpayer, then an interest will, in some cases, be calculated on this amount and credited to the taxpayers’ Swedish tax account.

Other information

Answers to frequently asked questions:

• The Swedish competent authority handles transfer pricing matters within the MAP framework irrespective of whether the applicable tax treaty contains a provision corresponding to Article 9.2 of the model tax convention published by the OECD or not.
• Secondary adjustments related to transfer pricing cases are not covered by a MAP.
• It is possible to request for a MAP if double taxation has occurred as a result of an adjustment initiated by the taxpayer.
• A MAP-request may concern several tax years.
• A MAP is applicable only to taxes covered by a tax treaty, unless the matter at hand is a possible case of discrimination (compare Article 24 of the model tax convention published by the OECD).

The MAP-request

A MAP-request must be signed by the taxpayer or by a representative with a power of attorney. It is important to ensure that the request fulfils the formal requirements and provides a detailed outline of the circumstances surrounding the case. A request may not be reviewed if it is incomplete or otherwise insufficient to serve as a basis for continued processing.

Assistance requested from the competent authority to initiate a MAP is free of charge.

The following information must be provided in an application, if relevant:

• name, address, personal identity number or corporate identity number of the applicant
• the countries concerned
• a reference to the tax treaty articles in question, and an explanation as to why the applicant considers the tax convention to have been applied incorrectly
• name, address and, if possible, identification number of any affected non-Swedish company associated with the applicant, and details of the relationship between the companies
• the tax year(s) to which the application relates
• the name of the tax agency or similar authority that has made the adjustment in the other country
• description of all relevant facts relating to the case, and details of the basis for taxation in the other country
• details of the amounts in question and how these have been calculated
• for transfer pricing matters, relevant transfer pricing documentation shall be attached
• copies of relevant documents sent to, or received from, tax agencies abroad
• details of any appeals made to courts in Sweden or abroad, and copies of any court decisions
• details of any Advance Pricing Agreement rulings or other agreement relevant to the case
• the power of attorney for any representative authorised to act on behalf of the taxpayer
• any proposed solution to the matter suggested by the taxpayer
• any other relevant information or documentation

In addition to the above, a MAP-request based on the EU Directive must also include the following:

• national regulations applicable to the dispute
• an explanation as to why the taxpayer considers that there is a question in dispute
• information on any complaints submitted by the taxpayer under other MAP or under another dispute resolution procedure related to the dispute
• confirmation that the taxpayer is aware that the MAP-request based on the EU Directive will bring to an end any other similar proceedings relating to the dispute
• a commitment by the taxpayer to respond as completely and quickly as possible to all appropriate requests made by a competent authority and to provide any documentation at the request of the competent authorities
• The competent authority may also request for any specific additional information that is considered necessary to assess the case.

It is often very useful to submit the MAP-request in English. It is also important that the concerned competent authorities have access to the same information throughout the process.

Please submit the MAP-request to the Swedish Tax Agency by ordinary post, or by email using the following contact details:

Skatteverket
Behörig myndighet MAP/APA
205 30 Malmö
Sverige

oca@skatteverket.se

Please note that a MAP-request that is based on the EU Directive must be submitted also to the concerned competent authority in the other EU member state. An individual or smaller undertakings need only to submit the request to the Swedish Tax Agency – see article 17 of the EU directive.

Legal frameworks and other information

Below is a list of income tax treaties that Sweden has concluded with other countries that are available at the “Legal guidance” section (“Rättslig vägledning”):

• Income tax treaties – a list of income tax treaties between Sweden and other countries External link.

Additional material relating to legal frameworks and other information:

• Regulation on the handling of issues related to tax treaties: SFS 2000:1077 External link.
• Regulation on the application of the double taxation treaty between the Nordic countries: SFS 1998:1314 External link.
• Council Directive (EU) 2017/1852 - The EU Arbitration Convention External link.
• The Swedish Tax Procedures Act External link.
• OECD Manual on Effective Mutual Agreement Procedures (MEMAP) External link.
• Application to the Swedish Tax Agency for an Advance Pricing Agreement regarding international transactions
• OECD Dispute resolution External link.
• Swedish legislation on dispute resolution in cases concerning tax treaties within the EU: SFS 2019:601 External link.
• Swedish legislation on dispute resolution in cases concerning tax treaties within the EU: SFS 2019:602 External link.
• Council Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the European Union External link.