Legal Alerts/19 May 2016

Legal Alert – Interest Deductions and Tax Avoidance – Important New Case Law

The Finnish Supreme Administrative Court has today issued two precedents having importance for the deductibility of interest expenses in taxation, allocation of income and assets to permanent establishments, and for the scope of the general anti-avoidance rule. These rulings are likely to have an impact on many pending tax litigations and they should be taken into account in tax planning going forward.

In both rulings (KHO 2016:71 and KHO 2016:72), the deductibility of interest expense resulting from an intra-group sale of shares was denied from a Finnish branch.

In the former case, the court stated inter alia that considering the provisions of the Nordic income tax treaty and the respective OECD model income tax treaty commentary, the shares acquired by the branch were not treated as assets belonging to the branch. Therefore, the related acquisition debt interest was deemed not deductible. In the latter case, the court applied the general anti-avoidance rule.

In both cases, the taxpayer was assessed a penalty, the amount of which was approximately 5% of the adjusted taxable income.

The Finnish Tax Administration has published a communication today, according to which it will publish additional information on the implication of these rulings into the Tax Administration’s guidelines and interpretations during the following week.

We are happy to discuss the outcome of the rulings with you if you have any further questions.

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Additional information

Heikki Wahlroos



Einari Karhu