Legal Alerts/27 Mar 2017

Legal Alert – Carried Interest Is Not Employment Income

The current legal practice on the taxation of carried interest seems to support its taxation as investment income. Recently, the Supreme Administrative Court (SAC) issued a ruling on 16 March 2017 in a case concerning the tax treatment of carried interest. In this case, the Administrative Court had ruled in favour of the taxpayer stating that carried interest was taxed according to its legal form and carried interest was not considered as employment income. The SAC did not grant the State representative a leave to appeal, which means that the Administrative Court ruling is now legally binding.

This case follows another ruling from the Central Tax Board issued in November 2016 (see our previous legal alert, in which carried interest was also taxed according to its legal form). The ruling from the Central Tax Board has become legally binding as well.

The Finnish Tax Administration has published a communication in April 2016 which implies that carried interest should categorically be considered as employment income. Based on the rulings above, it seems now that such view does not comply with legal practice.

The circumstances in each carried interest structure should be evaluated separately. However, following these two rulings, the starting point is that carried interest is not employment income.

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

Heikki Wahlroos