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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. New rules concerning interest deductibility become applicable as of financial year 2019. Broadly, the deductibility of a company’s net financing expenses are limited to 25% of that company’s adjusted taxable income. The adjusted taxable income is described as 'taxable EBITD' and is calculated as taxable income including group contributions and adding back interest expenses and tax depreciation. According to the new rules, restrictions on the deductibility of interest apply to all financing expenses, i.e. interest payable to both group undertakings and external parties. Financing expenses broadly means interest expenses on all forms of debt, other costs economically equivalent to interest, and expenses incurred in connection with the raising of finance (e.g. the capitalised interest included in the balance sheet value of a related asset or the amortisation of capitalised interest would be considered financing costs).

In case the total net financing expenses (including both internal and external financing) exceed EUR 500,000, the interest deduction limitations will apply. Should the total net financing expenses exceed the threshold of EUR 500,000, the deductible net financing expenses are limited to 25% of the company's adjusted taxable income (EBITD, i.e. taxable income including group contributions and adding back interest expenses and tax depreciation). Thus, in this case, the amount that exceeds 25% of the company's EBITD is non-tax deductible. However, external net financing expenses are always fully deductible up to EUR 3 million and will be deducted before internal financing expenses. This means that in case the net external financing expenses already exceed 25% of the company's EBITD, any of the internal financing expenses cannot be deducted.

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. Where a restriction is suffered (i.e. where there are non-deductible financing expenses), the financing expenses restricted can be carried forward in perpetuity.

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.

New rules concerning CFCs came into force on 1 January 2019, and the amendments shall be applied for the first time in the taxation for financial year 2019. The control criteria and the so-called escape rules faced significant changes due to the new legislation. In addition, it is worth mentioning that, due to the new rules, also a Finnish branch/PE of a non-Finnish company can be subject to CFC taxation in Finland. In addition, the WHT on the dividends distributed by the CFC can be credited in Finland against the CFC income. The determination of the too low taxation is not in itself facing any changes; also, under the new rules, 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.

According to the old CFC legislation, the control was established if Finnish persons had at least 50% control in the foreign company. According to the renewed CFC legislation, the control is established if the Finnish person/company either alone or together with related parties have a control of at least 25%. The residence state of these related parties is irrelevant.

On the basis of the old escape rule, a company subject to a low taxation did not trigger the Finnish CFC taxation if it (i) carried out the right kind of business activities, (ii) was located in a 'good' country and did not benefit from a special tax regime, or (iii) was located in a 'good' country and was genuinely established there. According to the new rules, there are only two so-called escape rules. One applying to the EEA-area and the other applying to countries outside the EEA-area. According to the so-called escape rule applying to the EEA-area, the CFC legislation does not apply if the company is genuinely established in the country and in fact carries actual business there.

The escape rule applying to countries outside the EEA includes the same requirement for the genuine establishment but also three additional requirements that all must be met. These three additional requirements are (i) the state of residence cannot be in the EU’s so-called black list, (ii) Finland must have an active agreement on the exchange of information in tax matters with the country in question (so-called 'white list' that is updated by the Finnish Tax Administration), and (iii) the foreign company must carry out business activities that are covered by the business line exception. The business line exception covers mainly industry and production and certain kinds of services.


Last Reviewed - 19 June 2019

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