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Preliminary Ruling in Tax-Neutral Transfer of Assets
The Finnish Central Tax Board gave a published preliminary ruling on 5 October 2011 on whether incorporating only one property could be regarded as a transfer of assets under Section 52d of the Business Income Tax Act (360/1968). Taxand Finland examines the preliminary ruling and the consequences for businesses with similar arrangements.
The applicant was a Finnish foundation deemed as a charitable organisation in its last tax assessment. The foundation owned property comprising of several buildings and representing a substantial amount of the assets of the foundation. Renting of the property brought considerable revenues and the tax office deemed in the taxation of fiscal year 2009 that the property was used entirely for business purposes. The foundation did not merely act as a passive owner but also took care of, e.g maintenance and management of all the buildings on the property.
The foundation planned to incorporate the property by means of transferring the property with all related buildings, assets and debts to a company to be established. Therefore, the foundation requested a preliminary ruling from the Finnish Central Tax Board if an arrangement whereby the applicant transfers all its property assets to a company to be established could be regarded as a transfer of assets under the Business Income Act.
The Central Tax Board accepted the view of the foundation according to which the property formed one business unit for the purposes of the Business Income Tax Act. The statement was contrary to the established tax practise, according to which one property has not been deemed to form one independent business unit in a transfer of assets (e.g CTB 1996/101 and SAC 2010/323). In the case at hand, the Central Tax Board reasoned the decision by stating that the substantial property management and renting operations were transferred to the company being established in accordance with the transfer of the property. In addition to that, the property was used entirely for business purposes. The decision was based on the discretion of the Central Tax Board with the conditions of the arrangement affecting the evaluation as a whole.
The resolution of The Central Tax Board creates new possibilities for the incorporation of property assets i.e also one property can be treated as an independent business unit. However, it is still recommendable to plan transfer of assets carefully and in many cases confirm the tax treatment by applying for an advance ruling.
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