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Swedish Court Decision Could Affect U.S. Businesses

By Tom Lickess

Rules determining what constitutes a permanent establishment—or a taxable presence—in countries around the world are changing. In almost all jurisdictions, those rules are becoming increasingly strict, as is the enforcement of those rules. Many of the changes are being driven by updated permanent establishment guidelines published by the Organization for Economic Cooperation and Development (OECD).

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The May 2016 raid of Google’s Paris offices is one prominent example of a case involving the changing and risky landscape of corporate taxation. This post addresses a recent case in Sweden involving permanent establishment (PE) that could have far-ranging consequences for any company operating abroad.

Earlier this year, a Swedish court held that a German company has a PE in Sweden despite the fact the company’s local activities were limited to short-term testing functions and the company maintained no physical office or storage facility in Sweden. The court essentially reviewed the German company’s Sweden-based activities in light of the company’s overall business. It ruled that the company’s activities could not be deemed to be preparatory or auxiliary in nature and therefore triggered a corporate tax presence in Sweden.

This surprising ruling should serve as a wakeup call to multinationals operating under outmoded assumptions of what constitutes a PE when operating abroad.

Read the full blog article for details, including what companies can do to protect themselves.