Legal Alerts/21 Feb 2017

Legal Alert – Supreme Court Decides to Include VAT in Environmental Permits’ Security Amounts

Last week the Finnish Supreme Administrative Court (SAC) issued a ruling regarding the security amount of environmental permits. The SAC’s ruling is a landmark case because it will change the established practice in most of the Regional State Administration Agencies, which creates additional costs for mining companies and other industrial enterprises. The case raised a question whether the environmental permit’s security should include value added tax (VAT) or not. The SAC was not unanimous in its decision, and after voting 5–2, it concluded that VAT should be included. Borenius represented the mining company in the legal proceedings.


Pursuant to the Finnish Environmental Protection Act, a mining company, as the holder of an environmental permit, was required to set up a security for the Centre for Economic Development, Transport and the Environment (ELY Center) in order to secure waste treatment of its activities. The Regional State Administration Agency had generally approved the Company’s calculation of costs in its plan for waste treatment but it had increased the amounts by including the VAT at the rate of 24%. The Company appealed to the Administrative Court.

Under the Environmental Protection Act, the purpose of a security is to secure waste treatment when ceasing activities. The security should cover any costs that may incur from waste treatment and closing down activities. This includes the costs of services by a third party service provider in case the company cannot take care of its waste treatment. The Finnish legislation and guidance on securities remain silent on whether cost calculations should include VAT or not.

VAT is an indirect tax levied on consumption and added onto suppliers’ sales prices. Suppliers charge VAT to buyers and account for the VAT to the Finnish state. When a governmental authority acquires goods or services, VAT will not remain as a cost for the state since the state is also a tax recipient.

The SAC stated that this VAT matter is not regulated and it is not taken into account in drafting law or authorities’ guidance, and therefore the court needed to consider the different goals of environmental permits’ securities and value added taxation. The majority of the SAC concluded that the costs incurred on waste treatment, including VAT, need to be covered by security. In SAC’s view, the security itself and any invoices received by the ELY Centre as a result of having to use the security, are not in the book-keeping of the ELY Centre. Regardless of the fact that the supplier finally pays the VAT to the Finnish state, the ELY Centre cannot be required to pay the amount of VAT from other funds than the security. The SAC concluded that VAT needs to be included in the security amount. As we considered, the minority’s dissenting opinion ruled that VAT should not have been included in the security amount since VAT does not remain as a cost for the Finnish state.

Effects of the new ruling

It is likely that VAT will be included in all waste treatment securities from now on. This results in additional costs for mining companies and other industrial enterprises (including landfills and waste treatment), as the security needs to cover an amount that is 24% larger than previously. This is especially unfortunate considering that VAT is not a cost for the Finnish state even if the security should be used. In any case, the ruling clarifies and harmonizes the practices of determining security amounts by the Regional State Administration Agencies.

Borenius’ lawyers are available to assist in addressing any questions you may have regarding this client alert. Please feel free to contact any of the Borenius attorneys listed in this alert or those with whom you usually work.

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Additional information

Casper Herler

Managing Partner


Henna Jovio