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.