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Finland Corporate - Group taxation

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Companies within a group are not consolidated for CIT purposes. However, via group contributions (i.e. lump sum payments of cash based on annual taxable profits), group companies may even out their taxable profits and losses, which leads effectively to the same result as consolidation would. A group contribution is a deductible cost for the granting company and taxable income for the receiving company, provided that all of the following are true:

  • Both companies belong to a group where there is a direct or indirect common ownership of at least 90%, and the group structure has existed for the entire fiscal year.
  • Both companies are Finnish resident for tax purposes.
  • Both companies are limited liability companies or co-operatives with business activities (i.e. have a source of income from business activities, see the Income determination section) and are not financial, insurance, or pension institutions.
  • The contribution is recorded in the annual statutory accounts of both companies involved and must affect their annual net income.
  • The accounting period for both companies ends at the same date.
  • The amount of contribution does not exceed the taxable business income of the granting company.
  • The contribution is not considered a capital investment.

Based on case law, the ownership chain may also be traced via foreign entities, provided there is a tax treaty between Finland and the country wherein the ultimate parent for the group is resident.

Transfer pricing

All transactions between related parties must take place at arm’s length. The requirement is imperative even in relation to purely domestic transactions. If the arm’s-length requirement is not followed, income or deductions of a company may be adjusted for tax purposes, in addition to which a risk for substantial penalties exists.

The guidance provided by the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations is adopted as a significant source of interpretation in the application of the arm’s-length principle. According to the Finnish Tax Administration’s statement, the OECD’s Base Erosion and Profit Shifting (BEPS) Reports are applied retrospectively.

A Finnish company is obligated to prepare transfer pricing documentation to support transactions between its non-Finnish related parties. Documentation is subject to statutory requirements regarding content, which vary depending on the volume of related-party transactions. As of 1 January 2017, the content requirement is in line with the three-tiered documentation model introduced in the updated OECD Transfer Pricing Guidelines. The documentation requirement concerns Finnish companies and Finnish PEs of foreign companies that are a part of a group that has more than 250 employees or a group that has a turnover of more than EUR 50 million and a balance sheet exceeding EUR 43 million.

These thresholds are calculated at the group level. Failure to present appropriate documentation within 60 days from the tax authorities' request may lead to a punitive tax increase. The documentation may be requested six months after financial year end at the earliest.

Country-by-country (CbC) reporting

The CbC reporting obligation applies to multinational groups with a consolidated turnover of at least EUR 750 million in the preceding fiscal year. The main rule is that an obligation to submit a CbC report to the Finnish tax authorities lays with the ultimate parent company if resident in Finland. However, if the ultimate parent company is not resident in Finland, the obligation lays with any other group company resident in Finland in case the foreign ultimate group company (i) is not obligated by CbC reporting requirements; (ii) is resident in a jurisdiction outside the European Union with which Finland has not concluded an agreement on exchange of information regarding CbC reports within due time; or (iii) is resident in a jurisdiction that has systematically neglected exchange of information and the Finnish tax authorities have reported this neglect.

This does not, however, apply to situations where the ultimate group company has appointed a group company resident within the European Union to submit the CbC report. Nor does it apply, under certain conditions, if the ultimate group company has appointed a group company resident outside the European Union. A notification of the company obligated to submit the CbC report shall be given to the Finnish tax authorities.

The CbC report shall contain the following country-specific data of the group companies and PEs:

  • Revenues.
  • Profit or loss before taxes.
  • Income tax paid and accrued, as well as WHT.
  • Bookkeeping value of equity.
  • Accumulated earnings
  • Number of employees.
  • Tangible assets, other than cash or cash equivalents.

In addition, the CbC report should include information on the business of each group company (and PE), as well as information on data sources and currency used. The government’s proposal text also suggests that other information that is considered relevant to facilitate an understanding of transfer pricing risks could be included in the CbC report.

Also, the CbC report can be provided in Finnish, Swedish, or English.

The CbC report shall be prepared for financial years starting on or after 1 January 2016, and it is due within 12 months after the end of the financial year concerned. A separate notification of the company obligated to submit the CbC report shall be made by the end of the fiscal year for which the report is provided.

Thin capitalisation

There are no thin capitalisation rules as such; interest limitation rules have been implemented instead. Deductibility of interest expenses for intra-group loans is restricted to 25% of fiscal EBITDA. Excess interest can be carried forward to future years. The limitation rules do not apply if (i) net annual interest expense (including both intra-group and third party interest) does not exceed EUR 500,000 or (ii) if the Finnish company's equity-to-gross-assets ratio is greater than or equal to the group-consolidated ratio. In addition, the amount of debt and rate of interest should be at arm’s length. If not, a possibility for application of the general anti-avoidance provision may exist.

Controlled foreign companies (CFCs)

The CFC rules are applicable with respect to foreign entities in low tax jurisdictions controlled by Finnish residents. The undistributed profits of such foreign entities may be taxed as profit of the Finnish resident direct or indirect shareholders. The entity is deemed to be controlled by Finnish residents if at least 50% of the capital or total voting rights are directly or indirectly held by Finnish residents or if Finnish residents have the right to at least 50% of the profits of the entity. The taxable person in such a case is the Finnish resident shareholder who directly or indirectly owns at least 25% of the capital of the corporate body or has the right to at least 25% of the profits of the entity. A foreign entity is considered to be low taxed if the actual income tax burden of the foreign corporation in its country of residence is lower than three-fifths of the tax burden of a comparable Finnish corporation.

Foreign PEs of non-resident companies can be regarded as equal to foreign companies, provided that the PE’s profits are not taxed in the head office state. Due to the transitional period, the PE provision is applicable to PEs of foreign entities only as of 1 January 2015.

Certain types of businesses are excluded from the scope of the CFC rules (e.g. income principally from industrial, manufacturing, or shipping activities, as well as sales or marketing activities related to such activities, if they are directed principally to the country of residence of the sales or marketing company). Also, companies resident in a country with which Finland has a double tax treaty (DTT) generally are outside the scope of the CFC rules if the company does not benefit from any special tax incentives in that treaty country. Tax treaty countries that are not covered by this rule are exhaustively mentioned in a specific ‘black list’ provided by the Ministry of Finance. These countries are Barbados, Bosnia-Herzegovina, Georgia, Kazakhstan, Macedonia, Malaysia, Moldova, Montenegro, Serbia, Singapore, Switzerland, Tajikistan, United Arab Emirates, Uruguay, and Uzbekistan.

In addition to these two mentioned exclusions, the Finnish CFC rules are not applicable in cases of genuine economical establishment in a foreign country, which is either an EU/EEA member state or a tax treaty state not on the ‘black list’. The genuine economical establishment is evaluated in light of the requirements of the business in question and paying special attention to capable personnel and office space located in the low tax jurisdiction.


Last Reviewed - 04 December 2018

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