Legal Alerts/26 Jan 2021

New Preliminary Ruling on the VAT Deductibility of Share Acquisition Costs

We successfully represented a Finnish private equity investor in a case concerning the right to deduct VAT incurred on acquisition costs. As a result of this case, the Finnish Central Tax Board gave a preliminary ruling on the VAT deduction right of share acquisition costs accrued to a holding company that is owned indirectly by a private equity fund. This is a notable achievement, as the Finnish Tax Administration has recently in most cases disputed the deduction right of acquisition costs in case of private equity investors and the companies held by the private equity investors. However, this new ruling of the Central Tax Board confirms, that the deductibility of the share acquisition costs does not depend on whether the holding company is indirectly held by a private equity investor.

New approach to deductibility

Under the new ruling, the holding company has the right to deduct VAT included in the share acquisition costs when the costs relate to its business activities that give the right to VAT deduction. Provided that the holding company will start supplying management services to the acquired company after the acquisition, the holding company is considered to be a taxable person and the share acquisition costs are treated as the overhead costs of the holding company. The VAT included in the overhead costs is fully deductible, when the holding company only engages in activities that give right to VAT deduction. According to the Central Tax Board, when determining the deductibility of the acquisition costs, it is of no relevance whether the holding company’s own employees provide the management services or whether the holding company uses subcontractors to provide these services.

Significant effect

In our view, the decision is in line with the Finnish and EJC case law, and it shows that the approach applied by the Finnish Tax Administration in denying the VAT deduction by active holding companies indirectly held by private equity investors has been incorrect. Although the ruling is not yet legally binding, the decision should provide any holding company directly or indirectly held by a private investor and involved in active management of acquired companies with additional support if the VAT deduction of acquisition costs has been denied by the Tax Administration.

Borenius’ lawyers are available to assist in addressing any questions you may have regarding this preliminary ruling.

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Additional information

Anna-Riikka Nummi

Senior Associate


Henna Jovio