Legal Updates

Legal updates covering current topics.

Legal Updates / 19.05.2017

Fund structures face concerns on interest deductibility

The deductibility of interest costs on intra-group loans has been limited since 2014. Very broadly, the deductibility of net interest expenses is limited to a defined percentage of taxable EBITDA. Nonetheless, according to a specific safe harbor rule, the restrictions on interest deductibility are not applied if the borrower company’s equity ratio (equity vs total balance) is equal to or higher than the same ratio calculated on the basis of a consolidated group balance sheet of the ultimate parent (the “balance sheet test”).

In a recent (not yet binding) ruling by the Central Tax Board, the Central Tax Board took the view that the balance sheet prepared at the level of a Finnish holding company should be deemed as a non-qualifying sub-group balance sheet. Accordingly, as the comparison must be based on a consolidated balance sheet prepared at the level of the ultimate parent, the sub-group balance sheet could not be used for purposes of the balance sheet test exemption.

In the case at hand, the ultimate parent was a Guernsey fund (partnership), which was not regarded as a separate legal entity, neither was it required to prepare a consolidated balance sheet under Guernsey law. The ruling of the Central Tax Board, which apparently indicates that the comparison should be made at the Guernsey level, could obviously lead to a situation where no qualifying consolidated balance sheet for balance sheet test purposes is available. Such fund structures could thus be denied the possibility to take advantage of the balance sheet test exemption. The ruling of the Central Tax Board has been appealed to the Supreme Administrative Court, which is expected to render its decision in early 2018.

For further information, please contact

Niklas Thibblin
Managing Partner
Jouni Kautto
Specialist Partner
Legal Updates / 16.05.2017

Opening of Finnish wholesale and retail natural gas markets for competition in 2020

The Finnish Government has on 11 May 2017 put forward a Government Bill regarding a new Natural Gas Market Act to the Finnish Parliament. The legislation concerning the natural gas market is proposed to enter into force on 1 January 2018, whereas the provisions concerning the separation of the natural gas transmission network from the production and sale of natural gas and the provisions concerning opening the natural gas market for competition will enter into force on 1 January 2020.

The purpose of the Government Bill is to open the wholesale and retail natural gas markets for competition in the beginning of 2020. The new Natural Gas Market Act will bring about the separation of the natural gas transmission network of the transmission network operator from the production and sale of natural gas by 2020, using the so-called effective unbundling model in the EU Directive on the internal market for natural gas (2009/73/EC).

The aim of the Government Bill is to improve the competitiveness of natural gas by less regulation concerning the wholesale and retail operations and distribution, as well as by abolishing the specific regulation regarding pricing of natural gas.

Furthermore, according to the Government Bill, provisions limiting unreasonable increases in the transmission and distribution fees of electricity and natural gas will be included in the Electricity Market Act and the new Natural Gas Market Act. The proposed maximum increase of fees is limited to an annual ceiling of 15% which, in addition, prohibits repeated 15% increases. The Finnish Energy Authority will monitor pricing and may intervene if violations are detected.

For further information, please contact

Legal Updates / 15.05.2017

Government Bill regarding Electricity Transmission and Distribution Prices

The Finnish Ministry of Employment and the Economy has on 11 May 2017 put forward a Government Bill amending, inter alia, the Electricity Market Act (588/2013) to the Finnish Parliament. The amendments concerning the Electricity Market Act are proposed to enter into force as soon as possible.

The purpose of the Government Bill includes the prevention of unreasonable increases of prices for the transmission and distribution of electricity. The Bill proposes provisions, according to which the increase of transmission and distribution prices would be capped at 15 per cent of the taxable total price for the relevant transmission and distribution during the preceding 12 months. The calculation of the price increase cap would be based on the relevant taxable total average price for each network user group, and the rules would apply in relation to both corporate customers and consumers.

The Bill does not include any proposal to regulate the distribution of certain items such as dividends, group contributions and the like to the owners of the network company, as proposed earlier by the Energy Authority.

For further information, please contact

Kim Ekqvist
Associate
Legal Updates / 03.05.2017

Draft Government Bill regarding MiFID and MiFIR published

The Ministry of Finance has on 28 April 2017 published the draft Government Bill regarding the implementation of the Markets in Financial Instruments Directive 2014/65/EU (MiFID II) and Markets in Financial Instruments Regulation (EU) No 600/2014 (MiFIR) into national legislation.

The draft Government Bill includes proposals for amending the Investment Services Act (747/2012), the re-enactment of the Act on Trading in Financial Instruments (748/2012) and some related amendments to, inter alia, the Act on the Financial Supervisory Authority (878/2008) and the Crowdfunding Act (734/2016).

The provisions on the scope of application and exemptions set out in MiFID II would be implemented in the Investment Services Act. The Investment Services Act would also introduce new provisions on algorithmic trading, the product approval process and incentive schemes. The draft Government Bill also suggests new provisions on investment advice and professional qualifications of persons providing information to clients. The main objective with the new provisions is to increase investor protection.

It is also proposed that the maximum amount of administrative fines imposed by the Finnish Financial Supervisory Authority would be increased significantly. It is, however, suggested that the higher maximum amounts would, with one exemption, only be applicable to a breach of the provisions introduced through the implementation of MiFID II.

Furthermore, it is proposed to amend the Crowdfunding Act by adding a licensing requirement for an investment-based crowdfunding intermediary.

The new Act on Trading in Financial Instruments would, as its currently applicable predecessor, regulate the licensing and organisation of regulated market places, as well as the organisation of multilateral trading facilities. The new Act on Trading in Financial Instruments would also include provisions on organised trading facilities (OTFs), SME growth markets and the licensing and operation of various reporting services. The SME growth markets is a new category of markets and refers to a multilateral trading facility (MTF) that is registered as a SME growth market in accordance with Art 33 of MiFID II. MiFIR will be directly applicable in Finland and contain new provisions on the transparency of trading, in particular in respect of non-equity products.

The legislation implementing MiFID II are expected to enter into force on 3 January 2018. MiFIR will be directly applicable also from 3 January 2018.

For further information, please contact

Tarja Wist
Founding Partner
Ann-Marie Eklund
Associate
.

Legal Updates / 29.03.2017

The Finnish Financial Supervisory Authority (FFSA) imposes penalties for breach of conduct rules by investment advisors

Following inspections conducted by the FFSA in 2015 and 2016, the FFSA issued on 6 March 2017 public warnings to and imposed penalty payments on four Finnish investment advisors. The inspections focused on the sale of investment fund products and structured financial instruments to non-professional clients over the age of 70. The public warnings were issued for negligence in relation to the obligations to obtain information from clients and to assess the suitability of the investment products prior to offering relevant investment advice The penalty payments, ranging from EUR 20,000 to EUR 1,000,000, were ordered first and foremost for omissions concerning documentation requirements in relation to the information obtained from clients and suitability assessments.

The inspections by the FFSA revealed multiple cases of non-compliance with statutory obligations. Violations were identified in relation to the obligation to obtain information on, among other things, the clients’ investment objectives, experience and knowledge, risk appetite and risk profile. One of the companies had failed to take adequate action to identify and prevent conflict of interest situations. In addition, there were shortcomings in the documentation of the information obtained and in the documentation of suitability assessments. The FFSA stressed that proper records enable an ex post verification of the course of events, which is necessary for the functioning and effectiveness of the FFSA’s supervision.

The decisions of the FFSA are a stark reminder of the detailed conduct of business rules and obligations that investment service providers must comply with. The decisions highlight the importance of well-designed and functioning internal processes to ensure compliance, proper training of relevant staff members and prudent adherence to the documentation and client assessment requirements. In providing investment advice, special attention must be given to the circumstances, risk profiles and expectations of individual clients. Investment advice must be guided by the interests of the client and extra precautions must be taken to avoid potential conflict of interests.

For further information, please contact

Tarja Wist
Founding Partner
Niko Markkanen
Associate
.

Legal Updates / 05.01.2017

Changes in the Finnish employment legislation

As part of the Finnish Government’s efforts to boost the competitiveness of Finnish companies and balance the public finance, several modifications to the Finnish employment legislation were introduced as of 1 January 2017. The modifications aim to increase flexibility on the Finnish labor market and curtail the increase of costs of the Finnish statutory pension system.

Employment Contracts Act

The maximum duration of a trial period is extended from four to six months. The trial period may be further extended if the employee is absent from work during the trial period due to sickness or family leave.

The employers are given the right to conclude a fixed term employment agreement with duration up to twelve months with a new employee if the employee has been continuously unemployed for the preceding twelve months.

The employer’s obligation to re-employ an employee whose employment has been terminated due to redundancy is limited from current nine months to four months for employees who have been employed by the employer for less than twelve years prior to the termination and to six months for other employees.

Employers who employ 30 or more employees in Finland are obliged to provide outplacement services to employees whose employments are terminated due to redundancy. The value of the outplacement services has to be approximately equal to the higher of the employee’s monthly salary or the average monthly salary of the employer’s all employees in Finland and the services have to be provided to the employees within two months after the expiry of the applicable notice periods.

Act on Co-operation within Undertakings

The Act’s scope of application is extended to cover branch offices of foreign entities in the same way as Finnish companies. Accordingly, a branch office of a foreign entity is obliged to observe the provisions of the Act if the branch office regularly employs 20 or more employees in Finland.

Employees Pensions Act

The statutory employment pension system is reformed and the statutory pension age increased. At the first stage the statutory pension age increases incrementally from 63 years and 3 months (for employees born in 1955) to 65 years (for employees born between 1962 and 1964). Beginning from 2030, when the employees born in 1965 start to reach the statutory pension age, the statutory pension age will be reviewed annually based on the expected life span.

For further information, please contact

Jouni Kautto
Specialist Partner
Legal Updates / 21.12.2016

The Finnish Financial Supervisory Authority (FFSA) implements the Guidelines issued by the European Securities and Markets Authority (ESMA) under the Market Abuse Regulation (EU) No 596/2014 (MAR)

The MAR Guidelines regarding legitimate interests of issuers to delay disclosure of inside information and situations in which the delay of disclosure is likely to mislead the public (ESMA/2016/1478), issued by ESMA on 20 October 2016, have been implemented in the FFSA Guidelines 6/2016 with effect from 20 December 2016 by way of a direct reference to ESMA’s Guidelines. In the same connection, the FFSA reminds issuers that the obligation to disclose inside information, unless legitimately delayed, arises under MAR earlier than under the domestic legislation previously applied, and stresses that the reasoning of any decision to delay disclosure must be well documented. Once the inside information is disclosed, the FFSA must be informed of the delay of its disclosure. The FFSA also calls for the update of the issuers’ disclosure policies to ensure that any  information is accurately classified when disclosed and that only inside information and other regulated information is disclosed as company announcements (fi. “pörssitiedote”). According to the FFSA, the classification of the disclosed information as a company announcement is sufficient to identify the information as inside information, as required by the Commission Implementing Regulation (EU) 2016/1055.

Also the MAR Guidelines (ESMA/2016/1477) regarding persons receiving market soundings has been implemented in the FFSA guidelines 10/2016 with effect from 10 January 2017. Market  sounding  comprises  the  communication  of  information,  prior  to  the  announcement  of  a  transaction,  in  order  to  gauge  the  interest  of  potential  investors  in  a  possible  transaction. The ESMA guidelines are addressed to persons receiving market soundings and detail the features which such persons are to take into account in order to assess whether the market sounding activity amounts to inside information, the steps to be taken by such persons and the records that such persons are to maintain.

Further information, please contact

Tarja Wist
Founding Partner
Ann-Marie Eklund
Associate

 

Legal Updates / 10.11.2016

Cartel damages actions in Finland suffer blow – more to follow

In its landmark judgments of 20 October, 2016 the Helsinki Court of Appeal (the “Court”) heavily reduced the damages awarded by the Helsinki District Court in the significant asphalt cartel damages cases. The Court awarded damages to the Finnish state and 39 municipalities in the total amount of some 34 million euros and rejected the major part of the damages claims against the companies involved in the asphalt cartel.

In many important legal questions of interpretation, the Court deviated from the rather claimant friendly approach taken by the Helsinki District Court.

For example, the District Court applied the EU law doctrine of economic succession to the damages claims based on the principle of effectiveness without any express ground for such application under national law. The Court took a completely different view and found that the EU law principle of effectiveness cannot be used to extend liability for damages to a party outside the sphere of responsibility for such damages. Hence, the principles applicable to the imposition of penalty payments cannot automatically be applied in the context of damages actions.

Moreover, as regards the limitation period based on the claimants’ awareness, the Court considered – in stark contrast to the District Court – that the limitation period started running already when the Finnish Competition and Consumer Authority made its proposal to the Market Court to impose fines on the cartelists. The Court, consequently, found that some of the claims were time-barred. The District Court had considered that the limitation period was triggered only by the final judgment of the Supreme Administrative Court confirming the existence of the cartel.

The judgments also include some other interesting interpretations, which are not in all aspects aligned with the EU Directive on Antitrust Damages (2014/104/EU). Some of the judgments have been appealed to the Supreme Court and are therefore not legally binding. The saga is, thus, not yet complete and the Supreme Court’s judgments may shed further light on, among other, the above controversial issues.

For further information, please contact

Matti Siiteri
Associate
.

Legal Updates / 25.10.2016

Proposal for bondholder trustee legislation gains overwhelming support from stakeholders

The proposal for the Finnish government bill on legislation governing bondholder trustees takes a step forward. The proposed legislation aims to increase legal certainty and promote the efficient functioning of the Finnish bond market by establishing a clear legal framework for the role of the bondholder trustee in Finnish debt issuances and, to an extent, the security agent in other collective financing arrangements. Earlier this year, the Ministry of Finance called for statements from 41 authorities and interest group representatives commenting the proposal.

Yesterday, the Ministry of Finance published a summary of the total 25 statements received, pursuant to which an overwhelming majority of the respondents – including the Bank of Finland, the Central Chamber of Commerce and the Finnish FSA – generally supported the proposal, with only one respondent being against the legislation on the grounds that it increases barriers to market and limits the freedom of contract. The published statements differed in the details, and it remains to be seen how they will shape the draft legislation.

Further information, please contact

Tarja Wist
Founding Partner
Maria Pajuniemi
Associate

Legal Updates / 07.10.2016

The Finnish Supreme Court rules on the Board of Directors’ liability for impairment of the environment (KKO 2016:58)

The Supreme Court of Finland has on 9 September 2016 ruled on the Board of Directors’ liability for impairment of the environment. By way of background, a Finnish limited liability company manufacturing potato flakes had caused contamination of the environment by releasing potato soil sludge (in Finnish: perunamultaliete) into the environment during the years 2004-2006. The question before the court was whether A and B, who were members of a three member Board of Directors of the company, had acted with intent or gross negligence and were, therefore, to be held liable for impairment of the environment.

According to the Supreme Court, A and B had duly taken care of obtaining an environmental permit for the company’s operations. However, they had not familiarized themselves with the content of the relevant permit. The company’s Managing Director had been responsible for the company’s daily operations and the compliance with relevant environmental regulations and orders. A and B claimed that the Managing Director had not informed them about the company’s relevant emission problems and, therefore, they had only become aware of the environmental impairment in 2008.

A and B had not provided the Managing Director with instructions or orders concerning the handling and supervision of environmental matters. Therefore, the Supreme Court concluded that A and B had approved that the handling and supervision of environmental matters belonged to the duties of the Managing Director. Furthermore, A and B emphasized their roles as external advisors and that their duties were linked to providing business law and financial consultation to the company. The Supreme Court concluded, however, that although the Managing Director was responsible for the daily operations of the company, this did not eliminate or diminish the duties and responsibilities of A and B as members of the Board of Directors. The Supreme Court held that the due organization of the company’s production, including the handling of waste in accordance with the environmental permit had been essential to the company’s field of operations. Consequently, it was the Board of Directors’ responsibility to see to that environmental matters and the supervision of the same was arranged appropriately. Since A and B had neglected to fulfill their duty to arrange and supervise the company’s environmental matters, the Supreme Court held A and B liable for impairment of the environment.

The Supreme Court held that A and B’s negligence was gross considering that they had not familiarized themselves with the content of the environmental permit and that they had deliberately neglected their duty to appropriately arrange and supervise the environmental matters of the company. The Supreme Court based the ruling on an assessment of how a diligent member of the Board of Directors should have acted in a similar situation.

For further information, please contact

Kim Ekqvist
Associate

 

Tuurna