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Real Estate Transfer Tax Designed to Increase State Revenue

Finland
On 28 December 2012 The Finnish Government decided on the proposed amendments to the Transfer Tax Act (Government bill 125/2012).

The amendments concern the increase on the amount of transfer tax levied on the transfer of shares of a housing company or a joint-stock property company. The alteration of the Transfer Tax Act will have an impact especially on holding companies holding Finnish real property. If certain criteria are met, the transfer tax will be levied even where a foreign company is concerned.

The amendments proposed were scheduled to become effective in January 2013. Although the Parliament agreed on the substance, the Parliament decided in accordance with the Finance Committee report that the proposed amendments should become effective later than scheduled. These amendments will be effective on 1 March 2013. Taxand Finland details the scope of the transfer tax amendments and the estimated increase in state revenue as a result.

The amendments to the Transfer Tax Act will expand the international scope of the Transfer Tax Act. There are three significant alterations:

1) The amount of transfer tax levied on the transfer of shares of a housing company or a joint-stock property company is increased from 1.6% to 2.0%. This increase has a substantial effect as the tax base of the transfer tax will include, in addition to the purchase price:

  • certain typical loan arrangements
  • any payment made by the purchaser that is a prerequisite for the transfer
  • any liability the purchaser assumes where the seller benefits from the arrangement

2) The alteration of the Transfer Tax Act will have an impact especially on holding companies holding Finnish real property. From the beginning of March 2013, the transfer tax of 2.0% will be levied if the shares of a domestic holding company holding Finnish real estate investment are transferred abroad. The transfer tax is levied even if the seller and buyer are both residents abroad.

3) The transfer tax will be levied even though it is a question of a foreign company. It has been common, due to the exemption of transfer taxation of foreign companies, to use a foreign holding company structure for tax planning purposes when exercising real estate investment activity in Finland. Savings in transaction costs have been gained by establishing a holding company to a country which does not levy a transfer tax directed to transfers of real estate shares. Since the beginning of March 2013, this exemption is no longer possible. The transfer of shares of a foreign holding company will be subjected to a transfer tax of 2.0% provided that over a half of the foreign company's total assets are composed of immovable property located in Finland. However, the transfer tax is levied only if one of the parties engaged in the transaction is a Finnish resident taxpayer or a branch of a foreign financial institution.

These alterations are estimated to increase the state revenue by EUR 80 million in a year. Along with the fiscal objective, these amendments also aim to narrow the gap between transfer taxation depending on whether the real property, as the object of a transaction, is owned directly or indirectly. Consequently, the new rules also cover transfer of the shares in a parent company which has a subsidiary owning real estate in Finland.


 

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

Taxand's Take

The amendments to the Transfer Tax Act recently introduced should be taken into account when conducting business in Finland. The amendments will expand the international scope of the Finnish Transfer Tax Act.

The amendments were scheduled to become effective in January 2013. In accordance with the Finance Committee report the Parliament decided to delay the effective date of the amendments concerning the increase on the amount of transfer tax levied on the transfer of shares of a housing company or a joint-stock property company, and also the alteration of the Transfer Tax Act concerning holding companies holding Finnish real property.

The alteration of effective date was based on the need to grant tax authorities enough time to draw up the application directive on partly obscure amendments. Consequently, it also grants time for taxpayers to complete the transactions affected by the amendments.

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Taxand's Take Author

Janne Juusela
Finland