Waselius & Wist

The ECJ has on 31 January 2013 in its preliminary ruling C-123/11 confirmed that the Finnish provisions restricting the transfer and utilisation of the tax losses of a non-Finnish subsidiary by its Finnish parent company in a cross-border merger scenario are, in principle, acceptable, but only to the extent that the non-Finnish subsidiary has exhausted all possibilities to utilise these tax losses in its own country of residence and that there is no possibility of their being taken into account in its country of residence in respect of future tax years either by itself of by a third party (the exhaustion test).

The ECJ left, however, the question and determination of “final losses” to be dealt by the Finnish Supreme Administrative Court. The decision of the Supreme Administrative Court can generally be expected within the next six months.

FINNISH TAX LOSS FORFEITURE AND DISPENSATION PROCEDURE MAY CONSTITUTE ILLEGAL STATE AID

According to the opinion of the Advocate General on 7 February 2013, the Finnish rules governing the forfeiture and subsequent preservation of tax losses after a change in the ownership of a company, may constitute illegal State aid for EU law purposes because of their allegedly selective nature.

According to the Advocate General, however, insofar as these Finnish rules would constitute illegal State aid, they should be classified as a form of aid that existed before Finland’s accession to the EU. Hence, Finland may continue to apply these rules as long as the Commission does not adopt a decision to the contrary.

Accordingly, should the ECJ follow the Advocate General’s opinion, the question whether the Finnish rules constitute illegal State aid will ultimately be resolved by the Commission. A subsequent decision to such effect by the Commission could result in the beneficiaries being obliged to repay the aid.

TRANSFER TAX TO INCREASE ON THE PURCHASE OF SHARES IN REAL ESTATE COMPANIES

As of 1 March 2013, the applicable transfer tax payable on the purchase of shares in Finnish real estate companies and companies whose main purpose is to directly or indirectly hold real estate or shares in real estate companies has increased from 1.6% to 2% of the purchase price. In addition, also the scope of the tax base has been expanded to cover, for example, the value of any (loan) payments that the buyer makes on behalf of the seller or the company to a third party in connection with the sale or any commitments by the buyer to make such payments in the future for the company’s or the seller’s benefit and/or behalf.

Important for foreign investors is additionally the fact that transfer tax will also become payable on the transfer and purchase of shares in non-Finnish holding companies managing Finnish real estate investments if either the seller or the buyer is a Finnish tax resident.

For further information, please contact Mr. Niklas Thibblin at niklas.thibblin@ww.fi or Mr. Jouni Kautto at jouni.kautto@ww.fi.

Earlier this year, the Finnish Ministry of Finance issued a draft bill to introduce interest deduction limitation rules in Finland, pursuant to which the deductibility of interest expenses on related-party loans would be limited to a maximum of 30% of EBITDA or EUR 500,000, while any non-deductible interest could be carried forward to future tax years.

The Ministry has recently published a new version of the draft bill, with certain amendments as regards, inter alia, the effective date and the scope of application of the proposed legislation.

Pursuant to the amended draft bill, in collateral arrangements, the scope of application would be limited to certain back-to-back loans. As a comparison, the new scope of application would rule out, for instance, share pledges as well as floating and fixed charges. Also cash pooling arrangements would generally fall outside the scope of the newly proposed provisions.

Further, financial, insurance and pension institutes as well as for instance real estate investment business would be excluded from the proposed regime.

Pursuant to the amended proposition, the restrictions would enter into force on 1 January 2014 (as opposed to the previously suggested beginning of 2013).

For further information, please contact Mr. Niklas Thibblin at niklas.thibblin@ww.fi or Mr. Jouni Kautto at jouni.kautto@ww.fi or Ms. Maria Pajuniemi at maria.pajuniemi@ww.fi.