Legal Alerts / 25 Oct 2012

Legal Alert – Finnish Transfer Tax Will Be Levied on Transfer of Finnish and Foreign Holding Companies in Certain Situations

The Finnish Government has proposed amendments to the Transfer Tax Act in its recent government bill 125/2012. Firstly, the amount of transfer tax levied on the transfer of shares of a housing company or a joint-stock property company is being raised to 2.0% from 1.6%. This increase has a substantial effect when taking also into account that – as a novelty – the tax would be paid on the price free of debts.

Secondly, the alteration of the Transfer Tax Act will have an impact especially on holding companies holding Finnish real property. According to the proposal, transfer tax of 2.0% would be levied if the shares of a domestic holding company holding Finnish real estate investment would be transferred abroad. The transfer tax is levied even if the seller and the buyer are both resident abroad.

Thirdly, the transfer tax can be levied in future even though it is a question of transfer of a foreign company. At present, due to the exemption of transfer taxation of foreign companies, it is common to use a foreign holding company structure for tax planning purposes when exercising real estate investment activity in Finland. Savings in transaction costs are gained by establishing a holding company to a country which does not levy a transfer tax directed to transfers of real estate shares. This exemption is going to change now. The transfer of shares of a foreign holding company would be subject to a transfer tax of 2.0% provided that over half of the foreign company’s total assets are composed of immovable property located in Finland. However, the transfer tax is levied only if one of the parties engaged in the transaction is a Finnish resident taxpayer or a branch of a foreign financial institution.

The amendments proposed would expand the international scope of the Transfer Tax Act. The amendments are scheduled to become effective in 2013.

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