Permanent Establishment: Staying Compliant Internationally

In a recent case, a Swedish Court ruled that a German company has a permanent establishment (PE) in Sweden despite the fact that the company’s was only performing short-term testing activities and maintained no physical office or storage facility in Sweden.

Case Study

The company markets a tire inflation pressure software systems in Germany, not Sweden. However since 2008, for three to four months each year, the company moved its testing equipment and a limited number of employees to Sweden to product test and collect data in Sweden’s harsh winter climate. This data is then analyzed back in Germany. The company has no permanent building or storage facility in Sweden.

Based on the above facts, and taking into account the Organization for Economic Cooperation and Development’s most recent PE guidance, the Swedish Court concluded the following:

  1. The German company’s activities in Sweden were not of a preparatory or auxiliary character — in other words, they represented part of the company’s core business — and so were not subject to a PE  exemption;
  2. The annually recurring presence and nature of the German company’s business in Sweden was such that the German company had a “fixed place of business” in Sweden.

As per the Court, the winter testing of the software done in Sweden was of very high significance to the overall business of designing, testing and manufacturing the tire inflation software system and the Sweden-based activities could not be deemed to be preparatory or auxiliary in nature.

The court also deemed that the recurring visits to Sweden constituted a fixed place of business, notwithstanding their short-term nature.

 Global Consequences

What constitutes PE in jurisdictions around the world has now become a moving target. PE provisions are being implemented on a country-by-country basis, with stricter enforcement by revenue authorities, particularly in Europe.

 What Can Global Businesses Do?

Review/audit global activities in light of PE risks and here are some things to keep in mind.

  • Activities of employees working under a non-resident employer arrangement are increasingly being scrutinized by revenue authorities. If you are using offshore representative office or a non-resident employer structure to conduct activities your operations may come under scrutiny.
  • PE-related advice or measures taken in the past may not be relevant to your current situation.
  • Global companies using cost-plus subsidiaries to assist with marketing and support activities in-country are coming under scrutiny.

The information shared in this blog provides general information only, and not a professional advice. Should you need support on international expansion services or have a specific question about Sweden, please contact us at or at +1-408-913-9130 to speak to one of our experts.