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Key amends proposed to taxing profit distribution

Finland

The Finnish Ministry of Finance has issued a set of proposed rules which could have a remarkable effect on the taxation of Finnish companies. Taxand Finland highlights the key tax aspects of the proposed rules. 

General income tax rate and dividend taxation

The bias of the taxation will generally be shifted from the taxation of companies to profit distribution. In connection with this, and as already proposed by Finnish government, the corporate income tax rate would be lowered from 24.5% to 20%. Dividends received by companies are suggested to be renewed. The possibility to receive tax exempt dividends from companies in EU countries would expand, as the exemption would apply to dividends distributed by all such companies tax resident in EEC area which are subject to corporate income tax of at least 10%. On the other hand, dividend distributed by a listed entity becomes fully taxable in the hands of non-listed companies holding less than 10% of the capital in the distributing company, only 75% of the same dividend being currently taxable. 

Repatriation of funds from non-restricted equity capital

One of the major systematic changes related to change of repatriation of funds from non-restricted equity capital, which currently decreases the remaining acquisition cost of the shares of the repatriating entity which are treated as capital gain. The situation would change dramatically according to the proposal, as according to the main rule, the repatriation would be taxed similarly to dividend income. As an exception, if it could be reliably shown that funds have ended up in the non-restricted equity capital through capital contributions which have taken place less than 5 years ago, and the repatriating entity would be a non-listed entity, the repatriation of funds would be treated as decreasing the acquisition cost of the shares. The exception would not apply to repatriation of funds by listed companies. Further, repatriations of funds to foreign shareholders would become subject to Finnish dividend WHT.

Changes in depreciation methods of long-term assets

Currently fixed assets with a long life time can, in Finland, normally be depreciated with declining balance method from the aggregate amount of items. However the regulation would change in relation to assets with a life time of over 10 years, which would, as of the fiscal year 2014, be depreciated with straight line depreciations determined for each of such assets separately.

Discover more: Key changes proposed to Finnish taxation of profit distribution


Your Taxand contacts for further queries are:
Janne Juusela
T. +358 9 6153 3431
E. janne.juusela@borenius.com

Sami Tuominen
T. +358 9 6153 3585
E. sami.tuominen@borenius.com

Taxand's Take

The proposed rules also include changes to the interest deduction limitation rules which will be slightly tightened, as the EBITDA limit determining deductible intra-group interest will be lowered from 30% to 25%, and tax incentives concerning both depreciations on certain production-related investments and qualified R&D costs would be withdrawn as from 2015. 

Multinationals with operations in Finland should further investigate the proposed rules and keep afresh of any developments in order to remain compliant. The proposed rules are now subject to public discussion and would mostly be applicable to fiscal year 2014.

 

Taxand's Take Author

Janne Juusela
Finland