International tax issues to be considered when structuring acquisitions of Intellectual Property: Sweden - overview

04 September 2008

Mahmut Baran

1. Tax rate on IP ownership

Royalties and capital gains are subject to corporate tax at a rate of 28%.

All expenditures regarding business related research and development are deductible. In addition, expenditures for research and development which are relevant or which may have relevance to the business activity are deductible. This also includes expenditures for retrieving information of such research and development. It is not necessary that the research is committed to a specific line of business; neither does the research need to be of a scientific or technical nature. However, deductions can not be made concerning contributions to research which are entirely beyond the field of interest of the company. The sole circumstance that a contribution creates goodwill should not result in a right to a deduction.

2. Withholding taxes

Withholding tax is not imposed on royalties or licence fees under domestic law. However, royalty and licence fee payments made to non-residents are generally regarded as the business income of the non-resident recipient, who is taxed at source in Sweden at 28% even in the absence of a Swedish permanent establishment.

Sweden has a good treaty network and protection from Swedish tax can be obtained under suitable tax treaties. Additionally, for payments to EU affiliates, protection can be obtained under the EC Interest and Royalty Directive.

3. CFC rules

Sweden has CFC rules. However, subsidiaries in EU Member States will only be subject to the CFC rules in respect of intra-group financial business activities in certain Member States and is only applicable if the business in question is conducted in an artificial way, i.e., without any personal and/or equipment resources. Recently, the Swedish Supreme Administrative Court stated in an Advance Ruling that the grant of a licence related to the use of certain trade marks and the grant of certain rights to use IT-systems under a licence agreement are not regarded as financial activities under the CFC rules. This outcome probably makes it possible for initiating EU SPVs for holding IP rights.