Cyprus Holding Company Wins Against Swedish Tax Agency’s Overly Aggressive PE Approach

At the end of October 2025, the Swedish Tax Agency lost a case in the Stockholm Administrative Court of Appeal concerning whether a Cypriot company that owned a substantial shareholding in a formerly listed Swedish company should be considered to have a Permanent Establishment in Sweden, and therefore be taxed on the share disposal. The judgment illustrates that the Swedish Tax Agency tends to act aggressively in relation to the use of foreign holding companies and that it thereby tends to apply the legal framework incorrectly. The company nevertheless prevailed and avoided a tax charge of more than SEK 80 million, which the Tax Agency had assessed against it.

What is a Permanent Establishment?

A foreign company, such as the Cypriot limited company in this case, may, if it carries out activities from Sweden, be deemed to have a Permanent Establishment in Sweden. This means that the foreign company becomes liable to Swedish corporate income tax on the portion of its profits that is attributable to the Permanent Establishment in Sweden.

Generally, a foreign company must have access to a fixed place of business through which the company conducts its business activities. “Fixed” essentially means that the activity is carried out at the location for at least six months. A foreign company may also be considered to have a Permanent Establishment in Sweden if its representatives habitually negotiate or conclude contracts on behalf of the company.

What were the circumstances of the case?

In the case, a former chairman of the board of the Swedish listed company had owned shares in that company through a chain of holding companies, one of which was a Cypriot limited company that held the Swedish shareholding. A takeover offer had been made by several interested bidders, and shareholders were asked to consider and respond to the offers.

The Cypriot company had a board of directors of which the physical owner – i.e., the chairman of the Swedish listed company – was not a member. The judgment states that the company conducted discretionary portfolio management, meaning that external asset managers invested the company’s funds in securities or other assets.

It is also noted that the company’s activity was very limited, and it therefore appears that the company was used purely as a holding company, primarily for the shares in the Swedish listed company.

How did the Stockholm Administrative Court of Appeal reason?

The Stockholm Administrative Court of Appeal began by clarifying that the burden of proof rested with the Swedish Tax Agency to show that the Cypriot company should be regarded as having had a Permanent Establishment in Sweden during the period when the shares were sold.

The judgment shows that the Swedish Tax Agency had only managed to present four email messages as evidence supporting its position. The Court of Appeal commented that these messages do not clearly demonstrate that it was the indirect owner of the Cypriot company who made the decisions regarding the share sale. On the contrary, the Court considered that the indirect owner had primarily acted in his role at the Swedish listed company, where he was required to act due to the takeover offers.

In summary, the Court of Appeal held that the Tax Agency had not proven that the company had a Permanent Establishment in Sweden, and therefore the share disposal could not be taxed with Swedish corporate income tax.

However, one of the judges in the Court of Appeal dissented, arguing that the four emails, combined with the fact that the owner resided in Stockholm where he also had an office, were sufficient to establish a Permanent Establishment and that the shares in question were attributable to that Permanent Establishment.

Nomadtax's Comment

In this case, the company had no office or other physical establishment in Cyprus. Instead, it was a company with a Swedish owner that functioned solely as a holding vehicle for the shares.

The judgment shows that a Swedish tax lawyer assisted with the formation of the company, handled the company’s ongoing formal obligations in Cyprus, and also served on the company’s board. The two other board members appear to have been appointed by the firm the lawyer worked for. This appears to have been a classic case of using “nominee directors”, which historically was a common method of attempting to create “substance” in the jurisdiction to which the company belonged – Cyprus in this case – including for the purpose of avoiding the company being considered to have a Permanent Establishment in Sweden.

It can certainly be questioned whether this approach constitutes sufficient establishment in Cyprus, but it must also be remembered that it is the Tax Agency that bears the burden of proving that a Permanent Establishment exists in Sweden.

On this point, the Tax Agency appears, more or less routinely, to argue that the mere fact that the company’s owner had a residence and/or office in Sweden should be sufficient to prove the existence of a Permanent Establishment here. In our view at taxhelpsweden/nomadtax, it is remarkable that certain administrative courts in Sweden appear willing to accept such a near-presumption that a fixed place of business exists in Sweden. This is particularly notable in reassessment cases, where the Tax Agency faces a higher threshold of proof compared to the ordinary assessment procedure.

What also becomes clear from the Tax Agency’s position is that the Agency accepted that the discretionary asset management activities did not give rise to a Permanent Establishment in Sweden, which is a positive fact for persons holding capital invested through discretionary asset management, in their e.g. Cypriot company.