In accordance with the EC Directive 2009/133/EC on mergers, divisions, partial divisions, transfers of assets, and exchanges of shares concerning companies of different EU member states, it is possible to carry out the said restructurings tax neutral if statutory conditions are met. In cross-border situations, both parties should be resident in the European Union. The principle of going concern is applied in taxation (i.e. the receiving company receives the assets with the values the transferring company had for those assets in its taxation).
EU state aid investigations
There are no current state aid investigations going on in Finland.
The information reporting requirement in the construction industry
A monthly notification duty of the employee and contract information to the Tax Administration applies to construction work subscribers and the main contractor of a joint construction site.
Foreign Account Tax Compliance Act (FATCA)
On 5 March 2014, Finland signed an intergovernmental agreement (IGA) concerning FATCA with the United States. On the basis of the agreement, Finland agreed to bring into force legislation according to which Finnish financial institutions are required to carry out specific due diligence procedures in order to identify their customers subject to tax in the United States and to report information relating to these customers’ income and wealth to the Finnish Tax Administration. The information to be reported includes, for example, interest income, income from dividends and derivatives, life insurance payments, and gross sales prices of shares and bonds. The Finnish Tax Administration shall forward the information to the US Internal Revenue Service (IRS).
The domestic law regarding the FATCA agreement was approved by the Finnish President on 20 February 2015. The financial sector began recognising their customers in accordance with FATCA as of 1 July 2014. The first FATCA reports (for year 2014) were required to be submitted to the Finnish Tax Administration by 30 April 2015.
The Finnish Tax Administration published tax technical guidance on the interpretation of the Finland-US FATCA IGA on 15 April 2015 (latest update in 2021). The guidance in the circular can be used to interpret the FATCA-related customer due diligence and reporting obligations faced by Reporting Finnish Financial Institutions.
Common Reporting Standard (CRS)
On 29 October 2014, Finland signed an international agreement on automatic exchange of information, which requires Finland to apply the CRS for Automatic Information Exchange published by the OECD.
Finland has implemented the CRS into domestic law as of 15 April 2016. The amendment requires Finnish financial institutions (as defined in the CRS) to identify their financial account holders and to annually report to the Finnish Tax Administration certain income and asset information with respect to account holders that have been identified to be tax resident in the countries outside of Finland.
Finland has agreed to exchange information automatically in accordance with CRS for the first time in 2017 regarding certain financial information collected from the beginning of 2016.
Information exchange within the European Union
Starting from 2016, the amended EU Directive of Administrative Co-operation in Tax Matters (Council Directive 2014/107/EU, the so called ‘DAC 2’ or ‘EU FATCA’) was implemented into domestic legislation. Under DAC 2, EU member states have to require their financial institutions to implement reporting and due diligence rules that are fully consistent with those set out in the CRS.
DAC6 mandatory reporting started on 1 July 2020
DAC6 is the EU Council Directive 2018/822, which deals with mandatory automatic exchange of information in the field of taxation in relation to cross-border arrangements. Finland has implemented the Directive to its national legislation, and the new law on reportable tax arrangements entered into force on 1 January 2020.
The reporting duty applies to tax planning structures in which the parties are from more than one member state or one member state and a third country and the arrangement includes at least one of the distinguishing hallmarks defined in the law. A distinguishing hallmark is a feature or characteristic that indicates tax avoidance. Additionally, some of the hallmarks are also subject to the main benefit test. The test determines if obtaining a tax advantage is the main purpose or one of the main purposes of the arrangement.
The reporting obligation started on 1 July 2020. However, the reporting duty covers all arrangements since the directive came into force. Thus, a reporting requirement also applies in respect of reportable arrangements where the first stage was implemented between 25 June 2018 to 30 June 2020, which must be reported by 31 August 2020 at the latest. From 1 July 2020 onwards, reports must have been submitted within 30 days of an arrangement exceeding the reporting threshold.
The reporting requirements concern primarily intermediaries (service providers) that design, market, organise, or manage the implementation of a reportable arrangement. Service providers may be, for example, tax consultants and attorneys, financial sector operators, and parent companies of groups. Taxpayers are required to report arrangements only when an arrangement does not involve a service provider with a reporting obligation, or the service provider has the right to a waiver due to legal professional privilege.
The Finnish tax law provides for a range of penalties, which varies depending on the gravity of breach:
- Minor omissions in reports or in the process applied: A maximum penalty of EUR 2,000.
- Substantial omissions or completion of reporting only after requested by the tax authorities: A maximum penalty of EUR 5,000.
- Deliberate or gross negligence: A maximum penalty of EUR 15,000.
Hybrid mismatch rules
New legislation regarding hybrid mismatch rules entered into force on 1 January 2020. This legislation provides for the implementation of the hybrid mismatch rules of the Anti-Tax Avoidance Directive, as amended by Council Directive (EU) 2017/952 (ATAD2). It addresses the exploitation of double deduction mismatches, deduction without inclusion mismatches, mismatches arising through structured arrangements, and mismatches arising through different treatment of the allocation of income and expenditure between a PE and its head office. The new legislation sets rules regarding denial of deduction or inclusion of income in the taxable base in order to avoid the mismatch situations, and it applies to both corporations and partnerships, as well as PEs.
Starting from 1 January 2022, the legislation on the reverse hybrid entities is amended to fully implement the ATAD2 Directive. According to the new legislation, non-resident partners of Finnish partnerships will have to pay tax on the income of a reverse hybrid entity in Finland if the conditions for applying the new rules are met. A reverse hybrid entity refers to a situation in which a Finnish partnership is regarded as a separate taxpayer under the laws of another state.