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Changes to Taxation of Share Exchange Agreements


Amendments to the regulations concerning the taxation of share exchanges have been proposed in the recent government bill. The proposal affects the exit tax regulations and includes amendments to the Business Income Tax Act and the Income Tax Act. Taxand Finland discusses the proposed changes to the bill and which taxpayers are likely to be affected.

The Law in Force
Exchange of shares is defined in section 52f of the BITA. The exchange of shares is at stake when a limited liability company acquires a sufficient number of shares in another limited liability company to give it the majority of the voting rights, or when a company which already has a sufficient number of shares acquires more shares. The acquiring company issues new or already existing shares in exchange for the acquired shares. In case money is used as consideration, the proportion of payment in money shall not exceed 10% of the nominal value of the shares used as consideration.

According to the proposed regulations, the exit tax is triggered when the shareholder moves outside of the EEA or forwards the shares after moving to another EEA country within five years after the end of the year of the share exchange. This means that the exit tax is applicable in fewer cases when moving within the EEA does not trigger the taxation, but on the other hand the time limit has been extended.

Taxand Finland provides a full look at the likely effects of the proposals in more detail

Taxand's Take

Regulations in force have been applied only when the shares issued in exchange have been new shares, whereas the new regulations also allow applying the exit tax in case of already existing shares which have been owned by the acquiring company. According to the proposal, the exit tax applies only to individuals. In order to clarify the legislation, a new provision is also added to the ITA. This defines the profit on sales which has not exceptionally been taxable as Finnish-source income due to the Business Tax Act.

Your Taxand contacts for further queries are:
Janne Juusela
T. +358 9 6153 3431

Sami Tuominen
T. +358 9 6153 3585


Taxand's Take Author