Permanent establishment determined in judgement for foreign company with employee working from home office in Sweden
Permanent establishment affects. A foreign legal person is subject to limited tax liability in Sweden, but is liable to tax on income from a permanent establishment in Sweden.
Here, our Tax and Legal Advisor Ellen Bergsten summarizes the judgment of the Swedish Administrative Court in Stockholm 2020-01-23 and highlights its consequences.
A company from the UK had an employee who worked from Sweden during a period in 2018. The company paid lower employer contributions for its employees because they did not consider themselves to have a permanent establishment in Sweden.
The Court has now ruled that the company must pay full employer contributions. This is because the court considers that the company has a permanent place at its disposal in that the employee works from his home office in Sweden. The Court has also considered that the employee carries out part of the company's core business from Sweden. Accordingly, the Court considers that the British company should be considered to have a permanent establishment here.
A foreign legal person is subject to limited tax liability in Sweden, but is liable to tax on income from a permanent establishment in Sweden.
A permanent establishment may occur if the following three criteria are met:
1. There is a place for business that the company has at its disposal.
2. The location is permanent.
3. The Company's business operations are conducted, in whole or in part, from this permanent location.
The court found that the employee's home office constituted such a permanent location from which the company's operations were conducted, although the location was also used for other purposes. It is not necessary for the company to own, lease or have any other formal legal right to use the premises in question, but it is sufficient that these are actually available and used continuously in the company's operations.
Although the employee has been responsible for more countries than Sweden and divided his working hours between different countries, the court considers that, because the employee worked most of his time from home, and that this employment relationship has lasted since 2015, the place should be considered permanent.
The company stated that the employee's tasks performed in the home were only of an administrative nature and that it should not be considered that the company's core business was conducted from the employee's home office. The employee had no authority to complete or sign agreements or make independent decisions.
The company's core business consists of sales of tractors and excavators, etc. However, the Court held that the employee's duties include planning and development of sales, conducting market research and monitoring competitors' pricing are considered to have a direct connection with the company's sales operations. Therefore, the fact that the employee has no authority to represent the company does not matter.
All in all, the court found that the foreign company had a permanent establishment in Sweden.
Consequences of the judgment of permanent establishment
The verdict means that the company will receive increased employers' fees and that they also are considered obliged to pay income tax in Sweden for the income that is to be considered attributable in Sweden. In other words, the Swedish Tax Agency expects the foreign company to allocate the revenues and costs related to the permanent establishment. Furthermore, the permanent establishment entails an obligation to establish ongoing accounting in Sweden and submit income tax returns to the Swedish Tax Agency.
The rules are not specific to Sweden, so the outcome would have similar consequences in other countries as well.