Legal Alerts/5 Sep 2023

New SAC Precedents on Tax Neutral US Flips

The Finnish Supreme Administrative Court (“SAC”) issued on 31 August 2023 two new precedents (KHO:2023:74 and KHO:2023:75) on the Finnish income tax treatment of the so-called US flip structures where a new US parent entity is inserted into an existing structure. The cases considered share-for-share exchange and merger structures.

Based on the precedents, an income tax neutral US flip is generally available through a merger structure, whereas a tax neutral share-for-share exchange to US is not possible.

Tax neutral US flip through merger

The SAC’s first precedent (KHO:2023:75) considered a US flip where the shareholders of a Finnish company (A Oy) incorporated a new US company (Y Inc.), which in turn incorporated a Finnish subsidiary (X Oy). B Oy was thereafter merged into X Oy.

The SAC considered the merger to be income tax neutral regardless of the fact that no merger consideration was paid to A Oy’s shareholders as they were also shareholders of Y Inc. in same proportions. Furthermore, the acquisition cost of the shares in A Oy was transferred and added to the acquisition cost of the shares in Y Inc. for Finnish tax purposes leading to effective tax neutrality.

The precedent confirmed that an income tax neutral US flip can be achieved by merger. However, potential tax losses of the Finnish company may be forfeited.

Tax neutral US flip not possible through share-for-share exchange

The second precedent of the SAC (KHO:2023:74) addressed a transaction in which a US company (C Inc.) acquired a Finnish company (B Oy) in a share-for-share exchange.

Pursuant to the wording of the Finnish Business Income Tax Act, a share-for-share exchange can be tax neutral only if the acquiring company is an EU/EEA resident entity. Thus, the wording of the tax law does not enable a tax neutral share-for-share exchange against shares in a US company.

The taxpayer argued that the Finnish tax provisions are contrary to the free movement of capital in the EU, which also applies to non-EU residents. Pursuant to the free movement of capital, transactions must be treated in a tax neutral manner without discrimination also in cross-border situations involving a non-EU party.

However, the SAC considered that the EU fundamental freedom applicable to this case is the freedom of establishment, as C Inc. was established in Finland by acquiring all shares in the Finnish target company. Since the freedom of establishment applies only to EU resident taxpayers, C Inc.’s establishment in Finland did not fall within the scope of the said freedom and thus, the non-applicability of the Finnish tax provisions on a tax neutral share-for-share exchange was not contrary to the EU law. Thus, the transaction did not meet the requirement for tax neutrality but triggered the capital gain taxation for Finnish shareholders.

Based on the SAC’s precedent, a tax neutral US flip is not possible as a share-for-share exchange. Furthermore, the acquisition of a Finnish company by a non-EU purchaser against share consideration is not tax neutral for Finnish shareholders but triggers a capital gain taxation similar to a cash purchase.

Impact of the precedents

The SAC’s new precedents confirmed two major principles relating to the US flips and other similar cross-border transactions involving non-EU entities.

  • Tax neutral share-for-share exchange is not possible if the purchasing company is not EU resident.
  • Tax neutral US flip can be achieved by (i) incorporating a new US entity by the shareholders of the original Finnish company with an identical shareholder structure, followed by (ii) a US company incorporating a Finnish subsidiary, and (iii) the original Finnish company merging into the new Finnish subsidiary.

The SAC precedents provide certainty on the tax treatment of common US flip structures.

Borenius’ tax experts are available to assist in addressing any questions you may have regarding the SAC’s rulings.

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Additional information

Heikki Wahlroos



Mikko Vesikivi

Senior Associate