The purpose of this thesis is to establish whether the domestic legislation of Sweden is in tune with the OECD December 2006 report on the attribution of profits to permanent es-tablishments (December 2006 report) and if not how Sweden ought to conform. How to attribute business profits to a permanent establishment (PE) is laid down in Article 7 of the OECD Model Tax Convention on Income and on Capital. In December 2006 the OECD released a report on how profits (losses) are to be attributed to PEs. The report lays down the current approach on how Contracting States should interpret Article 7 and is referred to as the authorised OECD approach. The purpose of the December 2006 Report is to re-vise Article 7 in order ensure a common interpretation on the Article. The aim is to apply the OECD Transfer Pricing Guidelines (TP Guidelines), otherwise applicable on transac-tions between a parent company and a subsidiary, by analogy to PE situations. The profits attributable to a PE are to be decided by using a two-step analysis. Under the first step a PE is to be hypothesised as a distinct and separate enterprise. The functions performed, assets used and risks assumed are to be determined and attributed to the rele-vant parts of the enterprise. In order to do this the economic ownership of assets is to be regarded. According to the OECD the functions performed by the people working within a PE, the significant people functions (SPF), are decisive when attributing assets and risks. To support the use of assets and the assumption of risks a PE is to be provided with a proper amount of “free” capital. Under the second step of the analysis a fair share of the entire enterprise’s profit is to be attributed to the PE. The actual amount of profit is to be established by performing a comparability analysis and by thereafter applying different transaction methods, using the method that best expresses an arm’s length price to the dealing at hand. To calculate a proper profit a PE shall be allowed to deduct interest. Sweden does not have much legislation concerning transfer pricing and there is hardly any legislation concerning PEs. There are no specific provisions in Swedish law on how to at-tribute profits between a head office and a PE. Furthermore, there are only a few judge-ments and no official guidelines regarding the attribution of profits to PEs. According to the domestic legislation of Sweden the amount of attributed profit shall be determined on the basis of separate accounts. The existing guidance in Swedish case law is not in tune with the authorised OECD approach. Swedish courts have ruled contrary to the authorised OECD approach when it comes to attributing “free” capital to a PE, allowing for deduc-tions of internal royalty payments and for recognising internal interest dealings. Further-more, a transfer of assets from a Swedish head office to a foreign PE has under certain cir-cumstances not been considered a taxable event. Since Sweden has not officially imple-mented any new legislation and the courts have not Stated any new principles regarding the attribution of profits to PEs it is unlikely that new concepts as the authorised OECD ap-proach will be adhered to at present time. In order to comply with the authorised OECD approach Sweden would need to introduce some new legislation. We suggest that Sweden implement a Section in its domestic legislation based on the authorised OECD approach. If Sweden adopts our proposed Section it would provide for a more unitary and consistent international approach and a needed certainty for enterprises on the treatment of PEs for tax purposes. / Uppsatsens syfte är att utreda huruvida Sveriges lagstiftning är i linje med OECDs decem-ber 2006 rapport och huruvida eventuell anpassning av gällande lagstiftning bör företas. Hur vinster skall fördelas till fasta driftställen bestäms av artikel 7 i OECDs Modellavtal för beskattning av inkomst och kapital. I december 2006 presenterade OECD en rapport om hur vinster (förluster) bör fördelas till fasta driftställen. Rapporten beskriver hur medlems-Staterna bör tolka artikel 7 och är refererad till som den godkända OECDtolkningen. Syftet med december 2006 rapporten är att revidera artikel 7 för att få till stånd en enhetlig tolk-ning av artikeln. Målet är att OECD TP Guidelines, annars tillämpliga på transaktioner mellan moder- och dotterbolag, skulle tillämpas analogt på situationer gällande fasta drift-ställen. Vinster hänförliga till ett fast driftställe skall bestämmas genom användning av en två stegs analys. Under det första steget i en sådan analys antas det fasta driftstället utgöra ett särskilt och separat bolag. De funktioner som utförs, tillgångar som används och risker som kan tänkas uppkomma i det fasta driftstället bestäms. För att kunna göra detta skall den eko-nomiska äganderätten av tillgången bestämmas. Funktioner som är av speciellt värde och som utförs av personal som arbetar vid det fasta driftstället, så kallade betydelsefulla perso-ners funktioner, är avgörande vid en fördelning av tillgångar och risker. För att stödja an-vändningen av tillgångar och antagandet av risker skall en skälig del av företagets fria kapi-tal tilldelas det fasta driftstället. Det andra steget i analysen skall bestämma hur mycket av bolagets vinst som skall tilldelas det fasta driftstället. Den vinst som skall fördelas bestäms utifrån en jämförbarhetsanalys och genom att tillämpa olika internprissättningsmetoder. Den metod som bäst ger uttryck för ett armslängdspris skall tillämpas på den gällande ”transaktionen”. För att beräkna en skälig vinst skall det fasta driftstället få göra ränteav-drag. Generellt sett har Sverige inte mycket lagstiftning gällande internprissättning och det finns knappt någon lagstiftning gällande fasta driftställen. Svensk lagstiftning innehåller inga spe-cifika regler om hur vinster skall fördelas mellan ett huvudkontor och dess fasta driftsälle. Vidare finns endast ett fåtal rättsfall och ingen officiell vägledning av vinsters fördelning till fasta driftställen. Enligt gällande svensk lagstiftning skall summan av den vinst som skall fördelas bestämmas genom tillämpning av separata konton. Den vägledning som ges ur svensk rättspraxis är inte i linje med den godkända OECDtolkningen. Svenska domstolar har dömt i motsats till den godkända OECDtolkningen vad gäller fördelning av fritt kapital till ett utländskt fast driftställe och vad gäller tillåtenheten göra avdrag för interna royalty- och räntebetalningar. Vidare har det under vissa omständigheter inte ansetts vara en be-skattningsbar händelse då en tillgång flyttas mellan ett huvudkontor och ett fast driftställe. Då Sverige inte implementerat någon ny lagstiftning och domstolarna inte slagit fast någon ny rättspraxis gällande fördelning av vinster till fasta driftställen är det inte sannolikt att nya koncept som framgår av den godkända OECDtolkningen kommer att bli åhörda i Sverige för närvarande. För att vara i linje med den godkända OECDtolkningen skulle Sverige be-höva introducera ny lagstiftning på området. Vi rekommenderar att Sverige implementerar ny lagstiftning baserad på den godkända OECDtolkningen. Om Sverige skulle välja att implementera vårt föreslagna tillägg i lag-stiftningen skulle det bidra till en mer konsekvent behandling av fasta driftställen och en nödvändig säkerhet för bolag avseende beskattningen av fasta driftställen.

<p>The purpose of this thesis is to establish whether the domestic legislation of Sweden is in tune with the OECD December 2006 report on the attribution of profits to permanent es-tablishments (December 2006 report) and if not how Sweden ought to conform. How to attribute business profits to a permanent establishment (PE) is laid down in Article 7 of the OECD Model Tax Convention on Income and on Capital. In December 2006 the OECD released a report on how profits (losses) are to be attributed to PEs. The report lays down the current approach on how Contracting States should interpret Article 7 and is referred to as the authorised OECD approach. The purpose of the December 2006 Report is to re-vise Article 7 in order ensure a common interpretation on the Article. The aim is to apply the OECD Transfer Pricing Guidelines (TP Guidelines), otherwise applicable on transac-tions between a parent company and a subsidiary, by analogy to PE situations.</p><p>The profits attributable to a PE are to be decided by using a two-step analysis. Under the first step a PE is to be hypothesised as a distinct and separate enterprise. The functions performed, assets used and risks assumed are to be determined and attributed to the rele-vant parts of the enterprise. In order to do this the economic ownership of assets is to be regarded. According to the OECD the functions performed by the people working within a PE, the significant people functions (SPF), are decisive when attributing assets and risks. To support the use of assets and the assumption of risks a PE is to be provided with a proper amount of “free” capital. Under the second step of the analysis a fair share of the entire enterprise’s profit is to be attributed to the PE. The actual amount of profit is to be established by performing a comparability analysis and by thereafter applying different transaction methods, using the method that best expresses an arm’s length price to the dealing at hand. To calculate a proper profit a PE shall be allowed to deduct interest.</p><p>Sweden does not have much legislation concerning transfer pricing and there is hardly any legislation concerning PEs. There are no specific provisions in Swedish law on how to at-tribute profits between a head office and a PE. Furthermore, there are only a few judge-ments and no official guidelines regarding the attribution of profits to PEs. According to the domestic legislation of Sweden the amount of attributed profit shall be determined on the basis of separate accounts. The existing guidance in Swedish case law is not in tune with the authorised OECD approach. Swedish courts have ruled contrary to the authorised OECD approach when it comes to attributing “free” capital to a PE, allowing for deduc-tions of internal royalty payments and for recognising internal interest dealings. Further-more, a transfer of assets from a Swedish head office to a foreign PE has under certain cir-cumstances not been considered a taxable event. Since Sweden has not officially imple-mented any new legislation and the courts have not Stated any new principles regarding the attribution of profits to PEs it is unlikely that new concepts as the authorised OECD ap-proach will be adhered to at present time. In order to comply with the authorised OECD approach Sweden would need to introduce some new legislation.</p><p>We suggest that Sweden implement a Section in its domestic legislation based on the authorised OECD approach. If Sweden adopts our proposed Section it would provide for a more unitary and consistent international approach and a needed certainty for enterprises on the treatment of PEs for tax purposes.</p> / <p>Uppsatsens syfte är att utreda huruvida Sveriges lagstiftning är i linje med OECDs decem-ber 2006 rapport och huruvida eventuell anpassning av gällande lagstiftning bör företas. Hur vinster skall fördelas till fasta driftställen bestäms av artikel 7 i OECDs Modellavtal för beskattning av inkomst och kapital. I december 2006 presenterade OECD en rapport om hur vinster (förluster) bör fördelas till fasta driftställen. Rapporten beskriver hur medlems-Staterna bör tolka artikel 7 och är refererad till som den godkända OECDtolkningen. Syftet med december 2006 rapporten är att revidera artikel 7 för att få till stånd en enhetlig tolk-ning av artikeln. Målet är att OECD TP Guidelines, annars tillämpliga på transaktioner mellan moder- och dotterbolag, skulle tillämpas analogt på situationer gällande fasta drift-ställen.</p><p>Vinster hänförliga till ett fast driftställe skall bestämmas genom användning av en två stegs analys. Under det första steget i en sådan analys antas det fasta driftstället utgöra ett särskilt och separat bolag. De funktioner som utförs, tillgångar som används och risker som kan tänkas uppkomma i det fasta driftstället bestäms. För att kunna göra detta skall den eko-nomiska äganderätten av tillgången bestämmas. Funktioner som är av speciellt värde och som utförs av personal som arbetar vid det fasta driftstället, så kallade betydelsefulla perso-ners funktioner, är avgörande vid en fördelning av tillgångar och risker. För att stödja an-vändningen av tillgångar och antagandet av risker skall en skälig del av företagets fria kapi-tal tilldelas det fasta driftstället. Det andra steget i analysen skall bestämma hur mycket av bolagets vinst som skall tilldelas det fasta driftstället. Den vinst som skall fördelas bestäms utifrån en jämförbarhetsanalys och genom att tillämpa olika internprissättningsmetoder. Den metod som bäst ger uttryck för ett armslängdspris skall tillämpas på den gällande ”transaktionen”. För att beräkna en skälig vinst skall det fasta driftstället få göra ränteav-drag.</p><p>Generellt sett har Sverige inte mycket lagstiftning gällande internprissättning och det finns knappt någon lagstiftning gällande fasta driftställen. Svensk lagstiftning innehåller inga spe-cifika regler om hur vinster skall fördelas mellan ett huvudkontor och dess fasta driftsälle. Vidare finns endast ett fåtal rättsfall och ingen officiell vägledning av vinsters fördelning till fasta driftställen. Enligt gällande svensk lagstiftning skall summan av den vinst som skall fördelas bestämmas genom tillämpning av separata konton. Den vägledning som ges ur svensk rättspraxis är inte i linje med den godkända OECDtolkningen. Svenska domstolar har dömt i motsats till den godkända OECDtolkningen vad gäller fördelning av fritt kapital till ett utländskt fast driftställe och vad gäller tillåtenheten göra avdrag för interna royalty- och räntebetalningar. Vidare har det under vissa omständigheter inte ansetts vara en be-skattningsbar händelse då en tillgång flyttas mellan ett huvudkontor och ett fast driftställe. Då Sverige inte implementerat någon ny lagstiftning och domstolarna inte slagit fast någon ny rättspraxis gällande fördelning av vinster till fasta driftställen är det inte sannolikt att nya koncept som framgår av den godkända OECDtolkningen kommer att bli åhörda i Sverige för närvarande. För att vara i linje med den godkända OECDtolkningen skulle Sverige be-höva introducera ny lagstiftning på området.</p><p>Vi rekommenderar att Sverige implementerar ny lagstiftning baserad på den godkända OECDtolkningen. Om Sverige skulle välja att implementera vårt föreslagna tillägg i lag-stiftningen skulle det bidra till en mer konsekvent behandling av fasta driftställen och en nödvändig säkerhet för bolag avseende beskattningen av fasta driftställen.</p>

No description available.

This Thesis studies a new and evolving area of international tax law, namely, the international tax law of Brazil, Russia, India, China and South Africa, the 'BRICS', and concludes that the thrust of their divergences from the developed world's international tax law evolves from the necessity to counter the significant illicit outflow of funds while not disturbing inbound FDI or, in recent times, their outbound FDI while ensuring profits are taxed where created. The design of the divergences reflects more on the initial limited manpower capacity of their emerging tax authorities to deal with the complex international tax law issues and politically encouraged policy cooperation amongst the BRICS than it does of actual tax authority cooperation although not wishing to underestimate the importance of that cooperation. Relevant to my conclusions are the published positions of international governance organisations and financing institutions, BRICS tax administrations, scholars and precedent, and I have used that information, both for and against, to arrive at the most rational conclusions. While economic theories may be relevant, they are not relevant to this study. My research questions include what is the basis of the BRICS approach to core international tax law, in what way has their approach to defining evasion and avoidance been driven by the magnitude of profits shifted offshore and particularly to tax havens and whether their divergences from the developed world's approach to countering thin capitalisation, transfer pricing and controlled foreign companies have been fashioned by the necessity for countering the elevated level of abuse. My conclusions also reflect my research on whether the divergences have been designed to counter treaty abuse affiliated with the transactions implemented by MNEs intending to shift the profits offshore or the accumulation of passive income in tax havens and, on whether were the BRICS to localise the BEPS recommendations, would their capacity to counter this abuse be improved. My research also considers whether resolving the disputation arising from the increasing level of tax authority cross border audits and investigations can be facilitated through the adoption of alternative dispute resolution procedures. I also study whether the BRICS' response to the world's growing information exchanging architecture reflects their elevated necessity for gathering information to be used to stem illicit flows, countering international evasion and avoidance and ensuring profits are taxed where created. I conclude the study with recommendations for the BRICS Heads of Revenue to include in a Communique for updating their tax law and procedures which counter the abuse and assist in dispute resolution.

O presente estudo tem por escopo analisar e reconstruir os fundamentos que informam os contornos da emblemática figura dos estabelecimentos permanentes. Muito embora a doutrina e a jurisprudência internacional tenham laborado ingente esforço no sentido de prover um conceito uniforme para tal expressão, sem o qual o legítimo exercício da jurisdição para tributar rendimentos empresariais pode restar prejudicado, ainda há muito o que ser discutido e examinado. Isso porque a economia global, assentada em uma intensa mobilidade de riquezas, evidencia a crescente diversificação das formas de organização empresarial, de modo que a regulação necessária a atender as peculiaridades atinentes a cada modalidade negocial demanda um exame aprofundado e contínuo. Nesse cenário, a clara definição e perfeita compreensão do relevante conceito do estabelecimento permanente, bem como a delimitação dos critérios indispensáveis à sua aplicação, têm cardeal relevância para as modernas relações comerciais. Tal relevância decorre do papel que atribuímos ao estabelecimento permanente neste trabalho, por reputálo enquanto elemento de conexão objetivo, eleito por excelência pelos tratados para evitar a dupla tributação no tocante aos itens de rendimentos empresariais em geral. Tomando como paradigma o modelo de convenção elaborada pela Organização de Cooperação e de Desenvolvimento Econômico, e somando a este os influxos do modelo produzido pela Organização das Nações Unidas, será possível traçar um conceito multifacetado de estabelecimento permanente, com base em determinados critérios classificatórios. Fundados em tais categorias, conduziremos o exame das convenções internacionais firmadas pelo Brasil e analisaremos como os enunciados veiculados por tais instrumentos devem ser operados face ao ordenamento doméstico brasileiro. Com efeito, a tese ora apresentada buscará municiar seus leitores dos instrumentos conceituais necessários para que o conceito de estabelecimento permanente seja aplicado de forma efetiva e coerente com as práticas internacionais. Almeja-se, com isso, traçar algumas propostas para solucionar o afã despertado por problemáticas fiscais suscitadas no bojo do Direito Internacional Tributário, no intuito de contribuir em favor da adoção pelo Brasil de postura mais condizente com os anseios da comunidade internacional. / The scope of this study is to analyze and reconstruct the foundations that outline the emblematic figure of permanent establishments. Although the international doctrine and case law have made great effort to provide such expression with a uniform concept - without which the legitimate exercise of the jurisdiction to tax business income could be impaired - there is still much to be discussed and examined. The global economy, which is based upon intense wealth mobility, attests the increasing diversification of entrepreneurial organization forms, in such a way that proper regulation requires a profound and continuous analysis, in order to meet the needs of the peculiarities of each business modality. Within this context, the clear definition and complete comprehension of this relevant concept (that of permanent establishments), as well as the delimitation of the criteria necessary to its proper application, are of the utmost importance for the modern commercial relations. Such importance derives from the role attributed to the permanent establishment in this essay, considered as an objective connecting factor elected by the double tax treaties in connection with business profits. Using the Model Convention of the Organization for Economic Co-operation and Development as a paradigm, and adding the input from the model elaborated by the United Nations, it will be possible to draw a multifaceted concept of permanent establishment, based upon some specific classificatory aspects. Such categories are the grounds for promoting a survey of the international conventions entered into by Brazil, as well as an analysis on how the norms enacted under such vehicles shall be operated in view of the Brazilian domestic law. In fact, the present thesis aims at providing readers with the necessary conceptual instruments to apply the concept of permanent establishment effectively and coherently with the international law practice. With that, this study elaborates on proposals to solve some tax problems emerged within the framework of the International Tax Law, with the purpose of contributing for the adoption of an approach by Brazil which is more consistent with the aspiration of the international community.

O presente estudo tem por escopo analisar e reconstruir os fundamentos que informam os contornos da emblemática figura dos estabelecimentos permanentes. Muito embora a doutrina e a jurisprudência internacional tenham laborado ingente esforço no sentido de prover um conceito uniforme para tal expressão, sem o qual o legítimo exercício da jurisdição para tributar rendimentos empresariais pode restar prejudicado, ainda há muito o que ser discutido e examinado. Isso porque a economia global, assentada em uma intensa mobilidade de riquezas, evidencia a crescente diversificação das formas de organização empresarial, de modo que a regulação necessária a atender as peculiaridades atinentes a cada modalidade negocial demanda um exame aprofundado e contínuo. Nesse cenário, a clara definição e perfeita compreensão do relevante conceito do estabelecimento permanente, bem como a delimitação dos critérios indispensáveis à sua aplicação, têm cardeal relevância para as modernas relações comerciais. Tal relevância decorre do papel que atribuímos ao estabelecimento permanente neste trabalho, por reputálo enquanto elemento de conexão objetivo, eleito por excelência pelos tratados para evitar a dupla tributação no tocante aos itens de rendimentos empresariais em geral. Tomando como paradigma o modelo de convenção elaborada pela Organização de Cooperação e de Desenvolvimento Econômico, e somando a este os influxos do modelo produzido pela Organização das Nações Unidas, será possível traçar um conceito multifacetado de estabelecimento permanente, com base em determinados critérios classificatórios. Fundados em tais categorias, conduziremos o exame das convenções internacionais firmadas pelo Brasil e analisaremos como os enunciados veiculados por tais instrumentos devem ser operados face ao ordenamento doméstico brasileiro. Com efeito, a tese ora apresentada buscará municiar seus leitores dos instrumentos conceituais necessários para que o conceito de estabelecimento permanente seja aplicado de forma efetiva e coerente com as práticas internacionais. Almeja-se, com isso, traçar algumas propostas para solucionar o afã despertado por problemáticas fiscais suscitadas no bojo do Direito Internacional Tributário, no intuito de contribuir em favor da adoção pelo Brasil de postura mais condizente com os anseios da comunidade internacional. / The scope of this study is to analyze and reconstruct the foundations that outline the emblematic figure of permanent establishments. Although the international doctrine and case law have made great effort to provide such expression with a uniform concept - without which the legitimate exercise of the jurisdiction to tax business income could be impaired - there is still much to be discussed and examined. The global economy, which is based upon intense wealth mobility, attests the increasing diversification of entrepreneurial organization forms, in such a way that proper regulation requires a profound and continuous analysis, in order to meet the needs of the peculiarities of each business modality. Within this context, the clear definition and complete comprehension of this relevant concept (that of permanent establishments), as well as the delimitation of the criteria necessary to its proper application, are of the utmost importance for the modern commercial relations. Such importance derives from the role attributed to the permanent establishment in this essay, considered as an objective connecting factor elected by the double tax treaties in connection with business profits. Using the Model Convention of the Organization for Economic Co-operation and Development as a paradigm, and adding the input from the model elaborated by the United Nations, it will be possible to draw a multifaceted concept of permanent establishment, based upon some specific classificatory aspects. Such categories are the grounds for promoting a survey of the international conventions entered into by Brazil, as well as an analysis on how the norms enacted under such vehicles shall be operated in view of the Brazilian domestic law. In fact, the present thesis aims at providing readers with the necessary conceptual instruments to apply the concept of permanent establishment effectively and coherently with the international law practice. With that, this study elaborates on proposals to solve some tax problems emerged within the framework of the International Tax Law, with the purpose of contributing for the adoption of an approach by Brazil which is more consistent with the aspiration of the international community.

La crise financière de 2008 et l’accroissement considérable de l’endettement public qui en a résulté ont mis au centre des priorités politiques contemporaines la nécessité de veiller à un alignement entre la fiscalité internationale et la création de valeur. Cette contemporanéité de l’enjeu ne doit pas occulter la redondance de ses causes avec celles qui ont présidé à la mise en place des premiers modèles de conventions fiscales bilatérales durant l’entre-deux-guerres sous l’égide de la Société des Nations. L’étude des travaux de l’organisation durant les années 1920 ainsi que de leur reprise par l’OECE puis l’OCDE au cours de la seconde moitié du XXème siècle permet de constater que l’ordre fiscal international actuel repose sur une logique d’alignement de la répartition de la matière taxable avec la géographie de la création de valeur. L’étonnement que suscite cette constatation lorsqu’elle est mise en perspective avec les critiques faites au système fiscal international actuel invite plus que jamais à étudier les rapports qu’entretient ce dernier avec la création de valeur : leurs connexions, leurs déconnexions, et les tentatives de reconnexions dont ils font l’objet. / The 2008 financial crisis and the resulting significant increase in public debt have put the focus of today's political priorities on the need to tax profits in accordance with value creation. The topicality of this issue must not overshadow the striking similarity of its causes with those that led to the drafting of the first model tax treaties in the 1920s under the aegis of the League of Nations. A study of the organisation's work, built on by the OEEC, and the OECD in the second half of the 20th century, shows that the current international tax system already tends to align jurisdiction to tax with value creation. This observation is surprising when put in perspective with the criticisms of the current international tax order. It invites us more than ever to study the relationship between the international tax system and value creation: their connections, their disconnections, and the attempts to reconnect them.

Notion de revenu et de perte Compensation des pertes et annualité de l'impôt Compensation des pertes et territorialité de l'impôt Analyse comparative des législations belge, française et néerlandaise Notion of income and loss Loss compensation and principle of annuality Loss compensation and territoriality Comparative analysis of the Belgian, French and Dutch tax legislations

It was assumed in the mid 1990s that 60% of all global trade took place within a group of enterprises. With increased globalisation leading to an increase in mergers and acquisitions this figure is most likely higher. Thus intra-company and intra-group transactions form a major part of business. These transactions, due to the association between the enterprises, may not always reflect the conditions that a market with independent actors would dictate. There are various reasons for this, which include not only tax considerations but also difficulties in establishing conditions that reflect those that inde-pendent companies would apply, in other words conditions in accordance with the arm’s length principle. In cases where these conditions are not in accordance with what the state considers as an arm’s length price, the profits of the enterprise located in that state may be adjusted for taxation purposes under transfer pricing provisions. The complexity of transfer pricing rules and the various methods for establishing an arm’s length price result in different interpretations and increased uncertainty for multinational enterprises that often face different rules for determining a correct transfer price. Therefore, enterprises may often face transfer pricing adjustments of their profits due to the complexity and differences in transfer pricing legislation. Transfer pricing adjustments potentially lead to unresolved double taxation, in fact business reports have indicated that 42% of the transfer pricing adjustments lead to double taxation. Therefore it is imperative to have legal mechanisms that resolve potential double taxation. The Convention on the Elimination of Double Taxation in Connection with the Adjustment of Profits of Associated Enterprises (Arbitration Convention) was adopted to give the multinational enterprises, facing double taxation due to adjustments of their profits, a remedy that obliged the states to resolve the double taxation. This was the first, and is still the only, EC-wide mechanism that technically guarantees that transfer pricing double taxation is resolved and thus holds a great improvement over other existing mechanisms to resolve double taxation. The Arbitration Convention was originally a proposed EC Directive but was transformed into a intergovernmental convention. This has resulted in that the European Court of Justice (ECJ) has no jurisdiction to interpret the Arbitration Convention or its application. Furthermore there is no supranational or international organ that could take action against states that interpret or apply the Conven-tion in an unintended manner. The chosen legal form has also resulted in different interpretations as to what status the Arbitration Convention has compared to bilateral tax conventions, and thus whether it precedes them. This could prove troublesome when future bilateral treaties are concluded or where there already exist tax treaties that have different solutions to transfer pricing related double taxation. The risk of the Convention being interpreted differently is greatly increased by the various undefined terms and lack of precise provisions in the Convention. Therefore, the Convention has been subject to an inconsistent application and interpretation from the date it came into effect in 1995. The Convention was only given a five year life span, after which it was destined to be renewed if the contracting states so expressed, involving the same ratification process as at the initial acceptation of the Convention. However, as this was inefficient, a Prolongation Protocol was signed to amend the Convention with an automatic extension of its life. As it took till 2004 for this Protocol to be ratified and finally enter into force on 1 November 2004 it created one of the main interpretation and application differences in the life of the Convention. The function of the Convention’s procedures and thus its efficiency in resolving double taxation is impeded by the numerous interpretation differences and lack of precise pro-visions in the Convention. The fact that there is no way to guarantee that the provisions of the Convention are precisely followed, partly since there are uncertainties regarding the precise interpretation but also partly since there is no organ that could enforce a uniform application of the Convention, further impedes the efficiency of the Convention, which is clearly seen in practice. Another question of interpretation and application raised is that, although the Convention was originally intended as a means for resolving transfer pricing related double taxation, there have been arguments that the Convention could apply to double taxation due to provisions concerning thin capitalisation as well. These provisions bring about similar conditions as those the Convention requires for its applicability and, although a different area of law, the connections in the conditions are many and undeniable.

Establishment in foreign countries can be achieved through a subsidiary company or a permanent establishment. Profit of a subsidiary company is normally taxed in accordance with the law of the country of where it is established, since a subsidiary company constitutes a separate legal entity. A permanent establishment on the other hand is not a separate legal entity, therefore profit in a permanent establishment is usually added on to the company’s total profit and taxed in accordance with the law of the country of where the company is established. Establishing business activities in foreign countries do normally not create problems, unless the business is carried on in a low tax jurisdiction. If that is the case, unlimited opportunities are created for companies to circumvent domestic taxation by transferring profit to the low tax jurisdiction, which in turn decreases the domestic tax base. In Sweden this kind of circumvention is precluded by chapter 39a ITA, in the meaning that a shareholder in a foreign company can be tax liable of low taxed profit in a foreign. The question that arises is whether chapter 39a ITA infringes on freedom of establishment. The outcome in the analysis is that there is a likeliness that chapter 39a ITA constitutes a restriction on the freedom of establishment. The escape provided in article 52 TFEU cannot justify the measure. Nor is it likely that the measure can be justified by the rule of reason. In the light of the assessment done in the analysis, it can be concluded that the chapter 39a ITA is applied in a non-discriminatory manner, satisfies a mandatory requirement (prevention of tax avoidance) and is regarded as appropriate in securing the achievement of the objectives. But there is a potential risk that measure will fail in the proportionality test.