In our previous legal alert, we discussed the draft government bill concerning the Finnish Corporate Tax System Reform. On 29 November 2018, the Finnish Government issued the final government bill proposing the abolishment of the personal source of income for corporations. Under the bill, the Finnish Business Income Tax Act (BITA) will generally apply to the taxation of corporations. However, the reform will not affect the taxation of e.g. non-profit entities and mutual real estate companies which will still have separate sources of income in future. The availability of group contribution will also be extended to ordinary and real estate holding companies not conducting business activities.
The final government bill proposes the following key changes:
- corporate entities would generally have a single source of income under which tax deductible costs and losses are offset against all taxable income and capital gains;
- Finnish group contribution regime is extended to companies, the taxable results of which are calculated according to the BITA (i.e. the regime also applies to companies not conducting business activities);
- a new class of assets, other assets, is introduced to cover non-business related assets. There are certain special rules that apply to this class of assets; for example the deductibility of losses incurred from shares in non-real estate companies and partnerships is restricted to capital gains among the other assets.
The proposed amendments will benefit taxpayers – cost deductions and offsetting of losses are simplified, since profits and losses would incur within the same source of income. In addition, group contribution will also be available to holding companies irrespective of whether they conduct business activities or not.
A notable exception is that capital losses incurred from shares in non-real estate companies and partnerships may only be offset against capital gains derived from other assets. It is worthwhile to notice that the deductibility of capital losses incurred from shares in real estate companies will be deductible against all income that is taxable under the BITA.
In comparison to the first draft government bill, the concept of business activities will not be extended to real estate activities. This may have significance for e.g. non-profit entities that will still have separate sources of income and that are subject to beneficial tax treatment for non-business related activities. As is currently the case, the BITA will apply to these entities’ real estate or other activities only to the extent they are considered business activities.
The amendments are proposed to enter into force in 2019 and apply to taxation from the fiscal year 2020 onwards. We will continue to monitor the legislative process of this proposal closely and provide updates if necessary.
Borenius’ lawyers are available to assist in addressing any questions you may have regarding this legal alert. Please feel free to contact any of the Borenius’ attorneys listed in this alert or those with whom you usually work.