Legal Alerts/12 Apr 2021

New Precedents on the Tax Neutrality of Certain Mergers

The Supreme Administrative Court (SAC) has issued two new precedents on the tax neutrality of cross-border mergers and mergers without consideration. In both cases, the SAC ruled in favour of the taxpayers, overturning the advance rulings of the Central Tax Board (CTB). The rulings bring new flexibility to the planning of certain cross-border and domestic mergers.


These two rulings relate to the same parties. Finnish resident individuals, X and Y, were the sole owners of A Corporation, a company registered in the US, and B Oy, a Finnish company. The companies had different classes of shares, but the factual ownership structure for both was similar. In addition, C Inc., a company registered in the US, was a wholly owned subsidiary of B Oy.

X and Y had applied for two advance tax rulings from the CTB: one concerning a merger without consideration and the other concerning a cross-border merger where the merging company resides outside the EEA.

Case 1 – A merger implemented without consideration

The first precedent concerns a situation where A Corporation was to merge into C Inc. without merger consideration. The merger would have been executed between these two companies under applicable US legislation. In the US, the merger would have been considered tax neutral. The question originally presented to the CTB was whether the Finnish tax neutrality provisions concerning mergers could be applied if A Corporation were to merge into C Inc., as described above.

The advance ruling of the CTB, which stated that the Finnish tax neutrality provisions could not be applied in the case at hand, was overturned by the SAC’s vote. Under the phrasing of the Finnish tax neutrality provisions, only subsidiary mergers and sister company mergers are regarded eligible for tax neutrality if no consideration has been issued.

Implications of this case

This ruling extends the scope of tax neutral mergers without consideration to situations where the receiving company is indirectly owned and the merger does not affect the ownership structure between existing shareholders. This brings new flexibility to merger planning.

Case 2 – A cross-border merger

In the second precedent, A Corporation was to merge into B Oy. No consideration was to be issued and the merger would have been considered tax neutral under US legislation. The key question was whether the merger could be treated as tax neutral in the shareholders’ X and Y’s taxation since the Finnish Limited Liability Companies Act only allows cross-border mergers within the EEA.

The SAC ruled that the fact that the merger would not fulfil the requirements of the Finnish corporate legislation should not be decisive. The SAC argued that when the tax neutrality provisions were enacted, no cross-border mergers were possible under the Finnish corporate law – but this does not, however, mean that the tax provisions could not be applied.

The case was referred back to the CTB for it to determine whether the merger fulfills the other requirements for the tax neutrality provision’s application.

Implications of this case

The case confirms that the merger being executed under Finnish corporate legislation is not itself a requirement for the merger to be tax neutral for the shareholders.

The precedents are final due to the SAC being the court of last resort in administrative cases. If you have any questions arising from these rulings, Borenius’ lawyers are happy to assist you.

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Additional information

Heikki Wahlroos



Max Malinen

Senior Associate