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Significant victory in a tax ruling process regarding Directed Employee Share Issue before the Finnish Supreme Administrative Court

Waselius & Wist successfully assisted a large international group in a significant tax ruling process with the Finnish Supreme Administrative Court, relating to subscription of shares by employees in an employer entity.

What made this case particularly challenging from the Finnish perspective was the fact that the employer entity was a Norwegian listed company, whereas the employees subscribing would be Finnish tax residents. Therefore, the Norwegian Companies Act was applied to the share subscription and issuance of shares, which was to be compared to the Finnish Limited Liability Companies Act for the purposes of the tax assessment. The Finnish tax rule scrutinized in the ruling was the one applied on “Directed Employee Share Issue” (the “Rule”). The Rule constitutes a right for employees to subscribe for shares in an employer entity for a price less than the FMV (fair market value), and the benefit accrued based on the discount would not be taxable if (i) the majority of the employees would be entitled to subscribe for the shares, and (ii) assuming the discount would not exceed 10% of the FMV of the subscribed shares.

What was really the heart of the matter in this case was the fact that the Finnish employees were entitled to subscribe for treasury, not newly issued shares in the Norwegian employer entity, whereas in prevailing practice by the Finnish Tax Administration the Rule has for decades been interpreted in a way where the subscription of treasury shares would not qualify for the benefit as described above. What further complicated the matter, was that the Finnish Companies Act had for almost two decades defined a “Share issue” as the kind where either newly issued or treasury shares could be issued for subscription. As now concluded by the Supreme Administrative Court, the Rule was to be interpreted in line with the Finnish Companies Act and accordingly a subscription of treasury shares would also entitle to the benefit. The Norwegian rules on share issue were considered by the Court as comparable to the Finnish equivalents. The ruling is final.

Lawyers involved:

Mona Numminen
Senior Associate
Mira Hänninen
Associate
Tuurna