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Ruling of the Stockholm Administrative Court (Sweden) in Re: Pandox AB dated 28 February 2022

Pandox AB, headquartered in Sweden, owns around 157 hotel properties in 15 Northern European countries. As per its transfer pricing policy, its profits are allocated to the countries in which the profits are generated. In view of the Swedish Tax Authority, the company’s profits had to be allocated and should be taxed in its country of headquarters rather than to the countries in which the subsidiaries are conducting their business. The Authority alleged that the headquarters performed all value adding functions of the core business, assumed all risks and actively managed the hotel properties. Consequently, the tax administration took the position that the companies in various jurisdictions were only entitled to a risk-free return, with the consequence that the residual income must be taxed in Sweden.


The Administrative Court had to decide whether the residual income should be allocated from the various properties to the headquarters in accordance with Paragraph 1.85 of the OECD Guidelines. The court held that the company had provided strong support for the business model where the headquarters was not the main contributor in the value chain after the acquisition process. It further held that even if the headquarters had the capability to manage local operations, it had not really used these powers. The documents such as long-term contracts with local businesses and revenue flows supported the assessee’s defense that the headquarters cannot be considered as an active investor. Therefore, the court rejected the transfer pricing adjustment.

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