This note covers the financial transactions elements of a Swedish Supreme Administrative Court judgment concerning the deductibility of intragroup interest expense through a branch. The core legal question — which interpretive framework applies when allocating a subsidiary shareholding and associated acquisition financing to a permanent establishment — is addressed only to the extent necessary to understand the interest deductibility analysis. This is a leading case (prejudikatfall) of general application to foreign entities operating in Sweden through branches and using intragroup financing to fund subsidiary acquisitions.
The facts
Essity Treasury B.V. Holland, a Dutch entity, operated in Sweden during 2014 and 2015 through a Stockholm branch (filial) and a Swedish subsidiary. The subsidiary acquisition had been funded through intragroup loans; the shareholding was recorded as a branch asset and the acquisition debt as a branch liability. Essity sought to deduct the interest against the branch’s Swedish taxable income on the basis that the subsidiary’s operations were integrated with the branch’s business. The interest rate was not in dispute.
Skatteverket (the Swedish Tax Agency) denied the deduction. It argued that allocation of the shareholding — and with it the interest — required application of the OECD Report on the Attribution of Profits to Permanent Establishments (the PE Profit Attribution Report, 2010), which sets out the Authorised OECD Approach (AOA). Under the AOA, economic ownership of an asset is allocated to the part of the enterprise where the significant people functions relevant to that asset are performed — the functions with authority over acquisition, disposal, and financing. Skatteverket found no such functions in the branch and denied the deduction.
The determination
Lower courts — split outcome
Förvaltningsrätten i Stockholm upheld Skatteverket, accepting the AOA as the applicable framework and finding no relevant significant people functions in the branch. Kammarrätten i Stockholm reversed on a different basis: it held the PE Profit Attribution Report did not address subsidiary shareholdings and that Swedish domestic law applied a different test — whether the shareholding was conditioned by (betingats av) the branch’s business. Finding sufficient operational integration, the Court of Appeal allowed the allocation.
Högsta förvaltningsdomstolen — 21 October 2025 — AOA applies, case remitted
Högsta förvaltningsdomstolen (the Swedish Supreme Administrative Court) granted leave on the preliminary question and answered it definitively: the OECD PE Profit Attribution Report governs under Swedish domestic law. The court held that Swedish PE taxation was modelled on the OECD Model Tax Convention and should be interpreted dynamically by reference to the current version of Article 7 and its Commentaries, which point to the PE Profit Attribution Report as the governing method. The absence of specific AOA guidance on subsidiary shareholdings did not displace the general rule: allocation follows significant people functions for all non-tangible assets. The earlier authority applying the ‘conditioned by’ test (RÅ 1998 not. 229) predated the AOA and did not survive. The Court of Appeal’s judgment was quashed and the cases remitted for re-examination applying the AOA framework. Whether Essity satisfies the significant people functions criteria on the facts remains open.
ajiho commentary
The AOA displaces the conditioned-by test for Swedish PE interest allocation
The deductibility of interest on intragroup acquisition financing through a Swedish branch now turns on where the relevant decision-making functions sit, not on whether the asset is commercially connected to the branch’s business. For groups with Swedish branch structures holding subsidiary stakes, the question is whether the people with authority over acquisition, disposal, and ongoing financing of those stakes are demonstrably located in — and acting through — the branch. Operational integration between branch and subsidiary is insufficient on its own.
Substance must be evidenced, not asserted
The significant people functions concept is not satisfied by organisational charts, account entries, or general claims of integration. It requires contemporaneous evidence of actual decision-making in the branch. Groups deducting intragroup interest through Swedish branches should review whether that evidence exists. The structure — a treasury entity in one jurisdiction, a branch in another, intragroup loans funding subsidiary acquisitions — is common. The judgment confirms it is viable in Sweden only where the functional substance genuinely supports branch allocation.
Dynamic interpretation means OECD guidance shapes domestic law in real time
The court’s adoption of a dynamic interpretive approach — applying current OECD Model revisions to domestic provisions enacted before those revisions — means subsequent OECD guidance can reshape existing Swedish domestic tax positions without legislative change. Groups managing multi-year Swedish PE exposures should monitor OECD developments as part of their ongoing tax position management.
What this means for your business
Foreign groups operating in Sweden through a branch that holds subsidiary shareholdings and deducts intragroup acquisition-financing interest should test their position against the Authorised OECD Approach rather than commercial integration. The deduction is defensible only where the branch demonstrably performs the significant people functions over the shareholding — the decisions to acquire, dispose of, and finance the stake — and where that decision-making is evidenced contemporaneously, not asserted after the fact. Because Swedish courts now interpret these provisions dynamically, groups with multi-year exposures should also keep the evolving OECD guidance under review.
Case reference
Skatteverket v Essity Treasury B.V. Holland, Stockholm Filial · Högsta förvaltningsdomstolen (the Swedish Supreme Administrative Court) · Mål nr 5375-24 and 5376-24 · 21 October 2025
Panel: Justitieråden Kristina Ståhl, Per Classon, Leif Gäverth, Magnus Medin and Mathias Säfsten. Appealed from Kammarrätten i Stockholms dom of 17 July 2024. Primary source: official judgment. This note covers the financial transactions elements only.