26.9.2018

Transfer Tax Advice – Assistance in a transfer tax matter concerning the repayment of guarantee capital

We assisted our client in a transfer tax matter concerning the repayment of guarantee capital.

The Finnish Tax Administration issued a preliminary ruling according to which the transferee was obligated to pay transfer tax on the repayment of guarantee capital when the guarantee capital was repaid due to liquidation. The Finnish Tax Administration ruled that the repayment of guarantee capital due to liquidation was, in fact, a payment made for the transfer of guarantee shares, which meant that transfer tax was payable on the repayment of the guarantee capital.

In a decision issued on 12 September 2018, the Helsinki Administrative Court overturned the Finnish Tax Administration’s ruling. It was undisputed in the case that the mutual insurance company’s guarantee share was a security, the transfer of which is subject to transfer tax under section 15 of the Transfer Tax Act. The issue being decided was whether the title to the guarantee shares is transferred to the mutual insurance company when the guarantee capital is repaid when the insurance company is liquidated, and thus, whether the repayment of the guarantee capital gives rise to liability for transfer tax.

The Administrative Court stated that the matter concerned a repayment of guarantee capital in relation to the liquidation of a company as referred to in chapter 23, section 22(2) of the Insurance Companies Act. The question was not of a performance to be deemed an acquisition or redemption of guarantee shares, rather it was a statutory distribution of funds of a liquidating company to the owner of the guarantee share. As no transfer of title took place, the repayment of guarantee capital in connection with the liquidation of the company was not a transfer that the company was liable to pay transfer tax on in accordance with the Transfer Tax Act.

The Supreme Administrative Court did not grant leave to appeal to the Tax Recipients’ Legal Services Unit, so the Administrative Court’s decision is final.

Helsinki Administrative Court 12 September 2018, record No 18/0784/6, docket No 01016/18/8510.