The scope of anti-avoidance rules in Finnish taxation has been subject to much discussion in recent years. The state representative and the Finnish tax authorities have been eager to apply the anti-avoidance rule to many kinds of corporate restructurings.
The Supreme Administrative Court (SAC) issued a precedent on 10 May 2017 in a case concerning a share for share exchange where the court ruled that the anti-avoidance rule was not applicable. This is the fifth precedent from the SAC on anti-avoidance during previous 12 months. In all of these cases, the court ruled in favour of the taxpayer. The ruling confirms important principles on how the anti-avoidance provision concerning corporate restructurings is applied:
- The first step is to evaluate whether the transaction results in tax advantages that would be contrary to the purpose of the law. If this is not the case, it is irrelevant whether the taxpayer has presented specific business-related grounds for the transaction.
- If the tax advantages resulting directly from the transaction are contrary to the purpose of the law, the business-related grounds for the transaction should be evaluated in order to determine whether tax avoidance was one of the aims or the sole aim of the transaction.
- The tax authorities may consider the business-related grounds behind the transaction to lack substance, but this does not create a presumption of tax avoidance. In general terms, the mere fact that the transaction results in a reorganisation of the corporate structure should be considered as sufficient business-related grounds for the transaction.
In addition, the ruling confirms that the tax advantages that result from a share for share exchange in these circumstances (step-up of acquisition cost, more beneficial tax treatment of dividends for individual shareholders) are considered to be in compliance with the purpose of the law. If the acquiring company sells the shares further in a subsequent transaction, the tax treatment of the share for share exchange may differ.
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