The Finnish Supreme Administrative Court (“SAC”) has recently issued a decision that essentially changes the calculation of the transfer tax base in M&A deals (share acquisitions).
Although, foreign investors may at present in certain circumstances take advantage from a transfer tax exemption, the main rule still is that share acquisitions (with the exception of publicly traded shares) are subject to transfer tax (at a rate of 1.6% or 2%). In addition to the purchase price, the transfer tax base also includes any debt or liabilities of the acquired entity (towards the seller or a third party) assumed by the purchaser based on the SPA, provided that the assumption of such debt or liabilities accrues to the benefit of the seller. Based on established taxation practice, for example, the transfer and sale of a shareholder loan to the purchaser in connection with the acquisition has been deemed as such an assumption of debt for the benefit of the seller, which will trigger a transfer tax liability. Equally, any repayment made by the acquired entity of a shareholder loan in connection with the transaction has been deemed as an amount that should be included in the transfer tax base, especially when this repayment has been financed by the purchaser and/or is a condition under the SPA.
Now, the SAC has, however, taken a different view and considered that the purchase of a shareholder loan in connection with a share deal should not be included in the transfer tax base, when the purchaser, under these circumstances, has neither financed the acquired entity for the purpose of enabling the repayment of the shareholder loan nor has the purchaser given any other guarantees in the SPA with respect to the repayment of the loan. Further, according to the SAC, a shareholder loan can neither be viewed as a security or other financial instrument within the meaning of the Finnish Transfer Tax Act. Instead, the purchase of a shareholder loan shall be considered as a mere change of creditor, which falls outside the scope of transfer tax.
The ruling of the SAC introduces alternatives for how a share deal could be structured and financed, at least from a transfer tax point of view. In addition, the ruling could open up possibilities for reclaiming transfer tax from past transactions, based simply on a previous incorrect tax assessment. However, prior to making any reclaim applications it is important to assess the provisions in the SPA and other relevant documentation to ensure that the appropriate conditions for a transfer tax refund are met. Also, the acquisition of shares (and shareholder loans) in real estate companies may require a more in-depth analysis, since certain loans, either based on law or the Articles of Association, can be held directly allocable to the shares in such companies and thus always included in the transfer tax base.
Waselius & Wist’s tax team can, in addition to advising on deal structuring, undertake an initial feasibility study on past transactions and assist you throughout a potential reclaim process.
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