The review includes a summary of the tax reforms from the latest government budget session as well as recent case law.

Government Budget Proposal Aims to Broaden the Tax Base and Combat Aggressive Tax Planning

The Ministry of Finance announced the government’s budget proposal on 9 September 2021. The budget proposal outlined a tax package to strengthen general government finances by approximately EUR 100 million. The new decisions will take effect in 2022 and 2023. The details of the announced changes will be specified as preparation continues.

The proposed changes have given rise to extensive debate and, as they stand, include many open questions. Some of the proposed changes can be expected to be challenging to implement in practice. The exit tax for private individuals, in particular, involves many practical problems.

The Government will debate the budget proposal on 27 September, after which the government proposal for the 2022 Budget will be published.

Recent Case Law

Supreme Administrative Court Issues Several Positions on Application of Limitation of Deductibility of Interest Expenses

The Supreme Administrative Court issued several decisions in September that took a position on questions relating to the application of limitations of the deductibility of interest expenses. The following section briefly reviews yearbook decisions KHO 2021:123 and KHO 2021:124.

In the decision, the Supreme Administrative Court also took a position on the concept of control, particularly on whether a joint venture agreement prevents the formation of control. The ownership of the company’s share capital was evenly divided between two companies, which were independent of one another. The chairman of the board did not have the deciding vote in voting situations. In case of a tied vote that the shareholders could not resolve, the joint venture agreement set forth that the final resolution would be to dissolve the joint venture. The Supreme Administrative Court found that as neither shareholder of the company had control, the company was not deemed to have a group link to the owners in the meaning set forth in the limitations of the deductibility of interest expenses.

Two Supreme Administrative Court Yearbook Decisions on Deducting Losses in Income Taxation

The Supreme Administrative Court has issued two yearbook decisions on deducting losses in income taxation. In the cases in question, losses confirmed in taxation were not carried forward in a merger.

It is particularly important to pay attention to the transfer of losses in mergers and acquisitions, and to carefully assess the prerequisites for their application when planning a merger or acquisition.

Share Swap Prior to Sale of Share Deemed Tax Evasion

In decision KHO 2021:65, the Supreme Administrative Court took a position on the application of the tax evasion norm and found that the norm was applicable in a situation in which a share swap was planned to be carried out prior to the sale of shares.

Company A was the parent company of a group engaged in the construction business and owned the entire share capital of Company B. Company B intended to carry out a tax-neutral share issue in which Company A would subscribe for all of the shares and would transfer as contributions in kind the share capital of six housing companies that it owned and that were entered in its inventories. No cash consideration was planned to be used in the arrangement. After the transfer of the contribution in kind, Company B would act as the developer of the housing companies, i.e. would hand over the construction contracts to the housing companies and would then sell the shares in the housing companies. The business grounds for the arrangement that had been presented in the matter were clarifying and stabilising Company A’s operations by moving developer operations under the subsidiary as well as acquiring the references necessary for Company B’s developer operations, which were starting up. The fair value of the housing company shares owned by Company A at the time of the share transfer, and thus, their acquisition cost in B’s taxation, was significantly higher than their acquisition cost in Company A’s taxation.

The Supreme Administrative Court found that the share transfer was just a tool in an arrangement that was actually aimed at ultimately selling the shares in the housing companies. The share swap would make it possible to increase the acquisition cost of the shares in Company B’s taxation, which was deemed to give rise to tax benefits alien to the system.

When also taking into consideration the business grounds presented, the Supreme Administrative Court found that the sole purpose or one of the main purposes of the arrangement was to avoid tax, and the contemplated share swap could not be deemed to be tax neutral.