Interest deductions – two significant cases from the Finnish SAC

By Sami Tuominen, Anna Shumskaya


On 19th of May 2016 the Finnish Supreme Administrative Court ("SAC") published two significant rulings on interest deductions in Finland. The cases were similar in that they both involved an acquisition of a new business and allocation of the shares and the acquisition loan further down the line.

In both cases the shares and the loan were allocated to the Finnish branch. The interest payments were covered by the group contribution paid to the branch by the Finnish target company. In the first case (SAC 2016:71), where the branch demonstrated few activities, the SAC ruled that shares of the acquired company do not belong to the business of the branch, therefore the interest of the acquisition loan could not be deducted from the taxable profits of the branch. In the second case (SAC 2016:72), the SAC analysed the arrangement as a whole and stated that the structure was artificial and lacked commercial viability. As a result, the SAC denied the deductibility of the interests too. In both cases a penalty tax of 5% of the adjusted taxable income was imposed.

Those two resent cases raise discussions on the acceptability of the branch arrangements in the acquisition process. It is still unclear whether the result would have been different had the acquisition vehicles used a limited company instead of the branch.

Finnish Tax Authorities have announced that these two precedents call for the reassessment of numerous similar arrangements in Finland. During the tax seminar held on 21st June 2016 in the Tax Authorities' premises, Finnish Tax Authorities predicted that there are several cases pending where actions will be undertaken in the near future. Previously in their announcement on 27th May 2016, Finnish Tax Authorities encouraged taxpayers with the relevant debt push down-structures to contact them for further cooperation.

The recent case law in Finland reflects the tightened tax atmosphere that is now prevailing in Finland. It is clear that previously accepted acquisition structures cannot be used anymore. Therefore, it is very important to ensure the acceptability of particular large acquisitions and arrangements with the Tax Authorities by applying for a preliminary ruling. Furthermore, the Finnish Tax Administration has launched a new proactive procedure where the taxpayer can discuss the tax risks of the planned transaction with the Tax Authorities. The discussion can be held completely anonymously through the authorised advisor.