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Advance ruling - a computer server gives rise to a permanent establishment
The Swedish Tax Board for Advance Rulings has issued an advance ruling regarding two foreign companies with a computer server and software as potential factors for creating a permanent establishment in Sweden. Taxand Sweden explores the case.
Y is the parent company of X. Both X and Y are companies resident outside Sweden. X will acquire a computer server which will be placed in a rented space in Sweden. X will then make space on the servers available for Y, which will save software owned by Y on the server. All surveillance of the server and the technology will be performed by staff in X and Y’s State of residence. No decisions will be taken, or any agreements concluded in Sweden. The question was whether X and Y through these activities will have permanent establishments in Sweden.
X and Y claimed that the activities do not give rise to a permanent establishment in Sweden. This as X’s activity to establish a server in Sweden is of preparatory or auxiliary nature and Y’s activities to provide software does not mean there is a place of business in Sweden.
The Swedish Tax Board for Advance Rulings found that Y does not have a place of business in Sweden solely based on the ownership of an intangible asset, the software. X, on the other hand, will have a place of business in Sweden by placing the server in a rented space in Sweden. This place will be fixed. Business activities carried out from this place will be the intra-group service to lease space on the server. As the company does not perform any additional activities to this service, the leasing of space on the server is the company’s core-activities and is thus not of preparatory or auxiliary nature. As a result X is deemed to have a permanent establishment in Sweden.
The case has been appealed to the Swedish Administrative Supreme Court.
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The core issue in this case is whether the activities performed from the place of business in Sweden are of preparatory or auxiliary nature. In situations where the activities are preparatory or auxiliary in nature, they would not give rise to a permanent establishment. This implicates that multinational groups should carefully consider how to structure the business when investing in servers or similar equipment in Sweden.