Legal Updates

Legal updates covering current topics.

Legal Updates / 29.09.2017

Finland to apply the ”establishment only” VAT grouping approach

Historically, charges between a head office and its overseas branches have been ignored for VAT purposes. The CJEU has in the FCE Bank case (C-210/04) held that where services are supplied between a head office and a branch, there is no supply for VAT purposes because the branch and the head office are the same legal person. Generally, this still remains the position.

However, in the Skandia case (C-7/13), the CJEU ruled that where an overseas branch is a member of a VAT group, it should be treated for VAT purposes as if it were a separate taxable person. Accordingly, in circumstances where services are supplied by a head office to a branch which is a member of a VAT group (to which the head office is not), there is a supply on which VAT should be charged. This approach is generally referred to as an “establishment only” VAT grouping.

The Finnish Central Tax Board has in a recent (not yet binding) ruling (KVL:2017:46) confirmed that Finland, in principle, applies the “establishment only” VAT grouping model. In the case at hand, the Central Tax Board held that services supplied by a Finnish branch to its UK head office are subject to a VAT charge in circumstances where the UK head office is a member of a UK VAT group to which the branch does not belong.

Where the Finnish branch can recover any Finnish VAT in full, this should have little practical impact. However, this VAT (which the branch may have to account for) could be a substantial additional cost for a VAT exempt business (for example banks and insurance companies) and affected businesses may need to consider how to structure internal supplies.

For further information, please contact

Niklas Thibblin
Managing Partner
Jouni Kautto
Specialist Partner
Legal Updates / 13.07.2017

Proposed changes to the Finnish merger control regime – increased scrutiny in the social and healthcare sector

A Government Bill issued on 15 June 2017 proposes a temporary amendment to the Finnish merger control regime. According to the proposal, the merger control regime would, subject to certain exceptions, be applicable to all concentrations where at least one party provides social or healthcare services, or imaging or laboratory services related to healthcare services, in Finland regardless of the turnover of the parties concerned.

The proposal is related to the overall reform of the Finnish social and health care system, which is currently being considered by the Finnish Parliament. The proposal seeks to limit further consolidation in the sector and maintain a competitive landscape with a sufficient number of competing service providers.

The concept of “social and health care services” is broadly defined in the proposal and the scope of application of the amendment would, thus, cover a wide range of undertakings active in the sector. Moreover, the notification obligation would apply regardless of whether the turnover thresholds of the Competition Act are exceeded. This marks a significant departure from the main turnover based regime. A short-form notification form is expected to be introduced to alleviate the administrative burden of notifying parties.

The proposed new notification obligation does not apply to small operators or undertakings within the same group of companies. Moreover, the notification obligation does not apply to transactions where the target company, the merging party or the joint venture company to be established does not operate in the Finnish market for social, healthcare, imaging or laboratory services, or in any related markets. The latter exemption is intended to exclude from the notification obligation acquisitions by conglomerates and private equity companies of targets active in the social and healthcare sector outside of Finland and targets in Finland, which are not active in the social and health care sector.

The following concentrations are excluded from the scope of application of the proposed new notification obligation:

(i) concentrations where all parties are self-employed persons;
(ii) concentrations within the same company or the same group of companies;
(iii) concentrations, which involve only two parties and where one of the parties is a service provider with only five health care professionals;
(iv) concentrations where the target, the merging party or the joint venture company to be established is not active in the Finnish market for social or health care services, or
imaging or laboratory services, or any related markets.

The proposal also includes an amendment to the processing times of the competition authority in respect of concentrations in the social and healthcare sector. According to the proposal, the current Phase 1 period of one month is proposed to be extended to 45 working days.

No amendments are proposed to the substantive assessment of concentrations and, accordingly, the SIEC-test (“significant impediment to effective competition”) will be applied also to concentrations caught by the amended regime. Consequently, the competition authority will likely be able to intervene only in respect of a limited number of notified transactions. The authority is expected to scrutinize regional market conditions very closely and, apart from horizontal mergers, also vertical mergers and conglomerate mergers where the parties operate in neighbouring markets will likely be subject to detailed review.

The amendment is proposed to enter into force as soon as possible and will be applicable to transactions entered into after the amendment has entered into force (likely in autumn 2017) and before 1 January 2019. The Government Bill is currently still pending with the Finnish Parliament.

For further information, please contact

Matti Siiteri
Legal Updates / 04.07.2017

Reformed Finnish Anti-Money Laundering Act brings new obligations for many entities as per 3 July 2017

The Finnish legal regime for anti-money laundering has been reformed in connection with the implementation of the fourth Money-Laundering Directive (2015/849/EC). The new Act on Preventing Money Laundering and Terrorist Financing entered into force on 3 July 2017 and applies to all parties (entities and natural persons) having a statutory reporting obligation, such as, for example, banks, insurance companies, investment firms, gambling companies, realtors, auditors, lawyers and parties engaged in the business of trading in products, to the extent that a payment for such products by a customer is made in cash in an amount of at least EUR 10,000 (unless engaged in financial activities on an occasional or a very limited basis only).

The new legislation brings the following key changes to the Finnish anti-money laundering regulations:

(i) Obligation to draw up an individual risk assessment: Parties having a statutory reporting obligation must make a written risk assessment to identify and assess the risks of money laundering and terrorist financing. The risk assessment shall cover risk factors relating to i.a. customers, countries or geographic areas, products, services, transactions or delivery channels. Also internal policies, controls and procedures shall form a part of the individual risk assessment, the scope of which is determined by the size, nature and characteristics of the reporting party’s activities. The documents relating to the risk assessment must be approved, monitored and up-dated by a person belonging to the upper management such as the managing director, the board of directors or a signatory right holder. A written risk assessment must be put in place by 31 December 2017.

(ii) Obligation to declare beneficiary owners: All legal entities (with the exception of listed companies), must report their beneficial owners to a register maintained by the Finnish Patent and Registration Office (Trade Register). A beneficiary owner is defined as a natural person holding more than 25 per cent of an entity’s ownership or voting rights. If another legal person holds a share of 25 per cent of more in the entity, the natural person(s) who de facto has the right to make independent decisions in the holding entity must be identified. Also, when considering beneficiary owners, not only ownership and voting rights shall be taken into consideration but also, for example, the rights conferred by a shareholders’ agreements, bye-laws and other arrangements by which control de facto may be exercised. The registration obligation enters into force 1 July 2019.

(iii) Obligation to identify and keep information on a beneficiary owner: Any party that is under a statutory reporting obligation must also identify the beneficiary owners of its customers and keep adequate, accurate and current information on the identified beneficiary owners. The new register on beneficiary owners to be maintained by the Trade Register may be used in order to receive up to date information on such beneficial owners.

(iv) Obligation to establish independent and anonymous whistleblowing channel: Parties under a statutory reporting obligation will have to establish independent and anonymous whistleblowing channels for its employees for the reporting of suspected breaches of the anti-money laundering regulations.

(v) New tougher sanctions: The supervising authority is vested with the powers to issue penalty fees amounting to EUR 5,000-100,000 for legal persons and EUR 500-EUR 10,000 for natural persons. For severe breaches/neglects tougher penalty fees are available: credit or financial institutions can face penalty fees amounting to at most 10 per cent of their turnover for the previous year, or EUR 5,000 000, whichever is higher. Other parties under a reporting obligation can face penalty fees the amount of which can be twice the benefit derived from the act/neglect or EUR 1,000 000, whichever is higher. In addition, the supervising authority must publish its decision on imposing a penalty fee on its internet pages and have the decision available to the public for five (5) years. Only if it would be unreasonable to publish the name or decision of the sanctioned natural person or entity or if such a publication could endanger any official investigations, the supervising authority may decide not to publish the details or to leave the decision unpublished.

During the past few years the amount of reports made to the Financial Intelligence Unit (independent unit within the Finnish Central Criminal Police) has varied between 20,000-38,000 per year (some 37,000 reports were made in 2015). Of these reports around 10 per cent have been subject to further investigations. Especially banks, other payment intermediation service providers and gambling companies have been active in submitting reports.

For further information, please contact

Tarja Wist
Founding Partner
Legal Updates / 30.05.2017

The Finnish Supreme Court strengthens the rights of non-union employees

The Finnish Supreme Court confirmed in its ruling 2017:29 on 23 May 2017 that senior white collar employees who are not members of the relevant trade union are entitled to elect a representative for themselves even though a shop steward has been elected in the company in accordance with the applicable collective agreement.

Previously the election of a shop steward for a company has overridden the possibility to elect another employee representative for the same employee group. The shop steward elected in accordance with the applicable collective agreement was obliged to represent all employees who were covered by the collective agreement, whether the employees were members of the relevant trade union, another trade union or even non-unionized.

The Supreme Court emphasized that it follows from the freedom of association that the use of this right to become a member of a specific trade union or not to become a member of the trade union cannot have negative consequences for the employees. Since the employees who were not members of the relevant trade union were not able to participate in the election of the shop steward, they could have been put in a worse position than the members of the relevant trade union if they would not be entitled to elect a representative to represent themselves in the workplace. The Supreme Court noted that the difference would be emphasized in situations where the employees who could elect a representative for themselves would constitute a separate employment group and thus their interests could be in conflict with the interests of the members of the trade union.

In the case at hand the shop steward was elected by the members of the trade union consisting of regular white collar employees while the senior white collar employees were organized in their own trade union. On the basis of the above the Supreme Court ruled that the senior white collar employees had the right to elect their own representative.

The ruling may represent a fundamental shift toward recognition of the rights of non-unionized employees, but no immediate impact is expected in companies where all three major employee groups (blue collar employees, white collar employees and senior white collar employees) are covered by different collective agreements. However, if several employee groups are covered by the same collective agreement, the companies should be prepared that underrepresented employee group, often senior white collar employees, may claim the right to elect a representative for themselves and have their representative included in co-operation between the employees’ representatives and the company.

For further information, please contact

Jan Waselius
Founding Partner
Jouni Kautto
Specialist Partner
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 Government Bill will 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
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

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

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