Legal Alert – The Finnish Supreme Administrative Court Rules on the Restructuring of Real Properties
The Finnish Supreme Administrative Court (SAC) issued two significant precedents on 23 October 2015 (SAC 2015:155 and SAC 2015:156). The rulings concern the application of Sections 52 c and 52 d of the Finnish Business Income Tax Act (BITA) with regard to real estate companies and real estate funds. When applicable, the said sections allow tax neutral divisions and business transfers (transfer of assets). The rulings are significant as they further clarified the position of real estate companies with regard to restructurings and post-restructuring sales.
Both rulings contribute to simplified restructuring of real properties for sales purposes. In both cases, the SAC ruled that the sections regarding tax neutral divisions and business transfers could be applied to companies that are not taxed under the BITA but under the Finnish Income Tax Act (ITA). Furthermore, the SAC concluded that the post-restructuring sale of the transferred property did not prevent the application of Sections 52 c and 52 d of the BITA.
The rulings also dealt with the question of whether one real property can constitute an independent business unit or not. Pursuant to Section 52 c of the BITA, a tax neutral partial division requires that at least one independent business unit is transferred to the receiving company. Correspondingly, a tax neutral business transfer in accordance with Section 52 d requires that all assets and liabilities connected to a certain business unit are transferred. In both rulings, the SAC concluded that given the extensive scope of rental activities connected to the properties, the fact that the restructuring concerned just one property did not prevent a tax neutral division, or respectively a tax neutral business transfer.