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Administrative Court decision on Sandvik's management of intellectual property rights

In 2005, Sandvik AB implemented a reorganization of ownership and management of intellectual property rights. All Swedish-owned patents and trademarks were transferred to Sandvik Intellectual Property AB (IP Company).

The reasons for this reorganization were the need to gather the activities relating to intellectual property rights into one company to highlight the considerable worth of the intellectual property rights and to gain operational advantages.

In December 2007, the Swedish National Tax Board did not approve the tax returns for the 2005 and 2006 fiscal years filed by the IP Company and denied deductions for amortization of the intellectual property rights. The following year, the Tax Board also denied the IP Company's deduction for such amortizations. The IP Company appealed the Tax Board's decision. The Tax Board approved Sandvik AB's tax return for 2005. Subsequently, the Tax Board, through the Public Commissioner, filed an appeal against its own decision relating to the above-mentioned reorganization.

The Public Commissioner requested that Sandvik AB be taxed in 2005 for a capital gain of SEK 18,097 M, which arose in the Group in conjunction with the reorganization.

The issue is described in Sandvik's 2009 Annual Report.

The IP Company's appeal of the Tax Board's decision pertaining to 2005 and 2006, and the Public Commissioner's appeal regarding taxation of Sandvik AB for 2005, as well as the appeal pertaining to the IP Company have now been addressed by the Administrative Court in Falun.

The Administrative Court approved the Public Commissioner's appeal pertaining to additional taxation of Sandvik AB for 2005. The Administrative Courts decision was not unanimous. The Court approved the IP Companys appeal as well as the Public Commissioner's appeal concerning the Tax Board's decision to refuse the deduction for amortization of intellectual property rights and approved the base for amortization.

The decision, if it gains legal force, entails that Sandvik AB will be taxed for additional earnings of SEK 18,097 M for 2005. However, this will not affect the Group's earnings, since the additional tax cost of approximately SEK 5 billion would correspond to the tax value of the increased amortization in the IP Company and this tax value, according to IFRS policies, would then be recognized as income.

Sandviken, 14 June 2010

Sandvik Aktiebolag (publ)