Legal Alerts/5 Jul 2019

New Rules for International Corporate Taxation: Exit Tax, Hybrid Mismatch Situations and MDR

In June 2019, the Finnish Ministry of Finance issued draft government bills for new legislation concerning exit taxation, hybrid mismatch rules and mandatory disclosure rules as required by EU directives. The draft proposals are open for consultation until mid-August 2019.

In general, the proposals include the minimum standards required by the directives. We have provided a summary of each draft proposal below.

Exit tax rules in corporate taxation

The rules on exit taxation implement the requirements of the EU Anti-Tax Avoidance Directive (the ATAD, 2016/1164/EU). The exit tax rules are to enter into force on 31 December 2019 and to apply from 1 January 2020 onwards.

At present, there are no general domestic rules on exit taxation. There are, however, some domestic rules in place concerning exit taxation in certain situations, some of which have been considered being against Article 49 of the Treaty on the Functioning of the European Union as no deferral of tax levy has been available in Finland.

The new domestic provisions on exit taxation would correspond to the minimum standard established in the ATAD and take into account the case law of the CJEU. The draft proposal sets forth the definition of the so-called exit value, which would be taxable income in exit situations. The exit situations that will result in Finland losing its taxing rights and which, as a consequence, will lead to the application of exit taxation, are as follows:

  • A taxpayer transfers assets from a permanent establishment (PE) located in Finland to a head office or to a PE located in another state;
  • Assets located in a Finnish head office are transferred to a PE located in another state;
  • The business operations of a Finnish PE are transferred out of Finland; or
  • A Finnish tax resident company transfers its domicile to another state except for assets that factually remain in a Finnish PE.

As required by the ATAD, a deferral to the payment of tax up to a period of five years would be available in situations concerning EU and EEA countries. In practice, the taxpayer would have the option to pay any imposed exit tax in instalments over five years as opposed to an immediate tax levy in the exit year.

The exit tax rules would apply to all sources of income and cover both corporations and partnerships.

Hybrid mismatch rules

This legislation will implement the cross-border hybrid mismatch rules set forth in the EU directive on amending the ATAD as regards hybrid mismatches with third countries (the ATAD 2, 2017/952/EU). The new rules are to enter into force on 31 December 2019 and become applicable from 1 January 2020 onwards. However, the so-called reverse hybrid rules included in Article 9a of the ATAD 2 will be implemented at a later date.

At present, there is no domestic legislation in place for hybrid mismatch rules in Finland apart from those related to the EU Parent-Subsidiary Directive. The proposed legislation corresponds, for the most part, to the minimum requirements established in the ATAD 2, while also taking into account the requirements of the OECD’s BEPS Action 2.

Hybrid mismatches are arrangements that exploit the non-uniformity of tax systems to achieve double non-taxation. The hybrid mismatch rules now proposed for implementation are intended to prevent any double deductions and loss of tax revenue arising from non-uniform tax systems. In accordance with the ATAD 2, the proposed legislation recognises different types of hybrid mismatch arrangements that may involve a double deduction, a deduction without inclusion and non-taxation without inclusion. The proposed legislation would resolve such situations by applying rules regarding denial of deduction or inclusion of income in the taxable base in order to neutralise the effects of the hybrid mismatch in question.

The new legislation would apply to both corporations and partnerships as well as to the PEs of Finnish entities or to the Finnish PEs of foreign entities.

Mandatory disclosure rules on cross-border arrangements

In May 2018, the EU introduced new mandatory disclosure rules for intermediaries (the Intermediaries Directive, commonly referred as the DAC6, 2018/822/EU) that were adopted as an amendment to the EU Directive on Administrative Cooperation. Finland will implement the new rules that will become applicable from 1 July 2020 onwards. Certain cross-border arrangements will be reportable retroactively from 26 June 2018 onwards.

The new legislation would impose an obligation on intermediaries providing tax-planning services (e.g. tax consultants) to inform tax authorities of certain cross-border arrangements that could potentially be used for aggressive tax planning. The secondary reporting obligation would be imposed on the taxpayer itself. The reporting obligation would not be, as a general rule, enforceable if national legal professional privileges apply (such as they do to, inter alia, attorneys). The draft proposal suggests that a penalty of up to EUR 15,000 could be imposed if either the intermediary or the taxpayer neglects to fulfil the reporting obligation.

The draft government bill proposes the implementation of the minimum requirements set forth in the DAC6, including, inter alia, the hallmarks and the main benefit test. According to the draft government bill, implementation in Finland would only cover cross-border arrangements. As such, no reporting obligation is introduced in relation to domestic transactions.

Please click here to read our previous legal alert on the matter.

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.

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Additional information

Heikki Wahlroos



Anna Tallgren