Waselius & Wist

The Finnish Financial Supervisory Authority’s (FFSA) recommendation on remuneration principles in the financial sector is mainly based on the European Commission’s recommendation on remuneration policies in the financial services sector of 30 April 2009. It intends to ensure, inter alia, that remuneration mechanisms within entities supervised by the FFSA do not include features that increase risk taking or diminish the stability of such entities or even the whole financial markets.

It is suggested that financial institutions establish and maintain remuneration policies that cover the whole personnel of the financial institution in question. The recommendation should, nevertheless, be applied in particular when remunerating the Managing Director and such other persons whose actions have a material impact on the risk exposure of the financial institution. Remuneration policies should be consistent with sound and effective risk management and should not induce excessive risk taking. Further, they should be in line with the business strategy, objectives, values and long term interests of the financial institution, and be consistent with the principles relating to the protection of clients and investors.

The recommendation includes guidelines as to striking an appropriate balance between the fixed and variable elements of pay. Further, it is recommended, inter alia, that the payment of the major part of any substantial bonuses or other variable components of remuneration should be deferred by at least three years and that the financial institution should have the ability to withdraw bonuses that are paid after the realization of a relevant risk factor. As to performance measurement, performance related remuneration should be based on an overall assessment reflecting individual performance as well as the performance of both the relevant business unit and the entire financial institution with due consideration of all the risks. Also, performance should be assessed against a multi-year framework and the payment of bonuses should recognize the relevant business cycle of the financial institution. It is further recommended, inter alia, that significant financial institutions would set up their own remuneration committees, independent control over the effectiveness and implementation of remuneration policies would be established and that relevant details of remuneration policies would be disclosed in a transparent manner.

For further information, please contact Ms. Tarja Wist or Mr. Lauri Peltola at tarja.wist@ww.fi or lauri.peltola@ww.fi.

The Ministry of Justice in Finland has recently completed its proposal for implementation in Finland of the European Directive (2009/44/EC) amending Directives 98/26/EC and 2002/47/EC on settlement finality in payment and securities settlement systems and financial collateral arrangements, respectively. The Directive is intended to be implemented through amendments to, inter alia, the Finnish Act on Certain Terms Relating to Securities and Currency Trade and Clearing Systems (the “Netting Act”) and the Act on Financial Collateral (the “Financial Collateral Act”).

Due to increased cross-border activity amongst settlement systems and the need for further certainty in respect of the night-time settlement of securities transactions, a number of more or less technical amendments in line with the European initiative are being proposed to the Netting Act. In practice, these amendments include the broadening of the definition of settlement systems in the Netting Act, which, going forward will encompass besides entities operating such settlement systems and the participants thereto, also other equivalent parties. Moreover, under the current Netting Act, obligations that have been entered into the settlement system on same day as the insolvency proceedings of a participant are commenced can be netted during the same day, provided that the entity operating the settlement system was not aware or should not have been aware of the commencement of insolvency proceedings at the time the obligations were netted. Such same day netting under the Netting Act is now proposed to be extended also to the night-time settlement of obligations.

As regards financial collateral arrangements, the proposed amendments to the Financial Collateral Act intend to extend the protection of the Act to cover also the use of new types of collateral in the relevant marketplaces, such as loan receivables and credit claims. It is intended that, for the purposes of the Financial Collateral Act, such new types of collateral would cover loans granted mainly by credit institutions, electronic money institutions and entities provided for in Article 4 of the European Directive on the taking up and pursuit of the business of credit institutions (2006/48/EC) (i.e. in Finland, Teollisen yhteistyön rahasto Oy and the Finnish Export Credit Agency, Finnvera Oyj).

The proposed legislation in respect of financial collateral arrangements is intended to enter into force on 30 December 2010, whereas amendments to the Netting Act shall enter into force some three months later.

The Supreme Administrative Court has recently in its decision (KHO:2010:15) upheld the preliminary ruling of the European Court of Justice C-303/07 (Aberdeen Property Finninvest Alpha Oy), in which the ECJ considered that Finnish withholding taxes levied on dividends paid by a Finnish limited liability company to its Luxembourg SICAV parent company constituted a restriction of freedom of establishment and that such withholding taxes thus should be abolished in circumstances where similar dividends paid to a Finnish parent company were exempt from taxation. Indeed, Finland has already as of 1 January 2009 changed its tax legislation to such effect that no withholding tax is levied in Finland in circumstances where the dividends would have been exempt from taxation if the EU/EEA recipient were resident in Finland and the recipient would not be able to fully off-set the applicable withholding tax in its state of residence.

In a subsequent case, the Supreme Administrative Court rendered a decision (KHO 12.3.2010/470), according to which profit distributions paid out of a Luxembourgian SICAV shall in turn qualify as dividend for Finnish tax purposes, although there, as such, is no type of company under Finnish company law with a legal form similar to a Luxembourg SICAV. In previous taxation practice, profit distributions from a Luxembourg SICAV have been taxed as profit shares from investment funds.

Based on the decisions, Luxembourg SICAVs may obviously be used as tax efficient tools for structuring a large number of both Finnish inbound and outbound investments. Especially the fact that many Finnish corporate investors (Finnish limited liability companies) can often receive dividends tax exempt provides for interesting tax planning opportunities. Further, to the extent that Finnish or foreign investors have suffered tax losses as a consequence of the previous taxation practice, they should consider filing claims for rectification.

For further information, please contact Mr. Niklas Thibblin at niklas.thibblin@ww.fi.

The Supreme Administrative Court has recently rendered a decision (KHO:2010:12), according to which a holding company set up mainly by private equity investors may still be deemed as a company engaged in private equity activities. In an earlier decision from 2009 (KHO:2009:64), the Supreme Administrative Court took the opposite view, thus removing the private equity status of a holding company and rendering the losses arising from the liquidation of its subsidiary non-deductible for tax purposes.

Contrary to the earlier case – where the holding company had no employees and carried no active business activities and where the intention was to liquidate the target (subsidiary) company immediately after the transaction – the holding company employed in this particular case four employees providing group internal and private equity services, but apparently most importantly, had also held its underlying subsidiaries for a longer period of time. In these circumstances, the Supreme Administrative Court considered the holding company eligible for the private equity status, which accordingly made the goodwill included in the purchase price of its Finnish subsidiaries deductible for tax purposes upon the liquidation of the subsidiaries in question.

The ruling of the Supreme Administrative Court clarifies to some extent the private equity concept. Private equity structures should now be carefully scrutinized to determine their tax efficiency.

For further information, please contact Mr. Niklas Thibblin at niklas.thibblin@ww.fi.

The Supreme Administrative Court has recently in its decision (KHO:2010:9) upheld the ruling of the Finnish Central Board of Taxation, according to which shares in a subsidiary may qualify as an independent business unit in connection with a partial demerger of the parent entity. Accordingly, the decision facilitates a tax-neutral transfer of shares in a subsidiary to another entity by way of a partial demerger. In the decision, importance was especially given to the fact the business purpose of the subsidiary was different from that of the parent entity and that the subsidiary also otherwise was able to operate on its own both from an organizational and from a financial perspective.

A partial demerger may therefore prove to be a very useful tool to restructure, for example, group holdings without any immediate tax consequences.

For further information, please contact Mr. Niklas Thibblin at niklas.thibblin@ww.fi.

The provisions of the Finnish Securities Market Act of 1989 relating to the cross-border and branch operations of foreign clearing, settlement and depositary houses (CSDs) will be amended with effect from 1 January 2010.

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The Finnish Supreme Administrative Court has recently issued its awaited decision in the largest cartel case tried to date in Finland, dismissing the asphalt companies’ appeals of the Market Court’s decision of 2007 and approving to a significant extent the appeal by the Finnish Competition Authority.

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The Supreme Administrative Court has recently rendered a decision, according to which a pure holding company set up mainly by private equity investors will not itself be deemed as a company engaged in private equity activities. Therefore, any possible capital or liquidation losses suffered by such holding company from its underlying investments will generally not be deductible for tax purposes.

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The Helsinki Court of Appeal has rendered its verdict in one of the largest insider dealing cases in Finland. The former key management of the Finnish telecommunications operator Jippii Group plc was found guilty of gross misuse of inside information, communications fraud and false accounting and was sentenced to up to two years unconditional imprisonment. Read more

The FFSA has published new guidance relating to disclosure of derivative contracts. According to the guidance, also cash-settled derivative contracts may trigger shareholder’s disclosure obligation insofar as, based on the derivative contract, the holder of the derivative may, directly or indirectly, exercise actual voting power/control in respect of the underlying shares. Read more