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.

According to the ruling by the ECJ on 19 July 2012, an exchange of shares between a Finnish limited liability company and a Norwegian company shall enjoy similar tax-neutral treatment as an exchange of shares between companies resident in the EU.

In the ruling, given based on a request from the Finnish Supreme Administrative Court, the ECJ stated that the treatment of an exchange of shares between a Finnish and a Norwegian company as a taxable disposal of shares would, at the outset, be a restriction on the freedom of establishment. The ECJ noted also that there were no sufficient grounds to justify the difference in treatment, since the agreement concerning transfer of information between the Finnish and Norwegian authorities provides for an equally effective transfer of information as provided for between EU Member States.

The ruling is likely to further enhance cross-border restructurings between EEA countries. The Finnish tax authorities have earlier also taken the view that mergers between Finnish companies and EEA companies qualifies for tax-neutral treatment.

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

The Finnish Ministry of Finance has recently prepared a draft bill, which, if enacted, will introduce entirely new interest deduction limitation rules in Finland. To date, Finland has not effectively had any specific limitation rules on interest deductibility and, for example, anti-avoidance rules have generally not been used by the tax authorities in an attempt to deny or restrict deductions of (arm’s length) interest expenses.

The primary purpose of the bill is to limit the deductibility of interest payments between related parties both in domestic and cross-border scenarios. In addition, the restrictions would also apply to interest expenses on loans granted by third party lenders in certain back-to-back lending scenarios and/or in circumstances where an affiliated company has granted a guarantee or security for the loan.

The actual restrictions on interest deductibility would be based on an EBITDA-To-Interest-Ratio. According to the bill, interest expenses exceeding the amount of accrued interest income (i.e. net interest expenses), would only be deductible up to an amount that corresponds to 30 % of EBITDA. Net interest expenses exceeding 30 % of EBITDA (i.e. non-deductible interest expenses) could, however, be carried forward indefinitely.

Under a specific safe haven provision, the restrictions on interest deductibility would, nonetheless, only kick in with respect to net interest expenses exceeding € 500,000 per tax year.

The proposed restrictions on interest deductibility are planned to come into force on 1 January 2013 and they will obviously have an impact on, inter alia, private equity structures and other financing structures that have taken advantage of debt push down. We will keep you updated on any further developments.

For further information, please contact Mr. Niklas Thibblin at .