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Rule on taxation of interest income
The Finnish Supreme Administrative Court (SAC) issued a precedent under which a Finnish lender may be taxed on accrued interest income even if the interest has not yet been paid. Taxand Finland discusses this contentious decision.
In Finnish taxation, individuals are normally taxed only on income that has been paid to them, or that has otherwise been at the individual’s disposal. Thus, the SAC’s ruling can be seen to limit the scope of this principle. The ruling may be problematic in practice since the payment of tax must be financed before any income has been paid out. Further issues may arise in situations where the borrower is in default and cannot pay any interest that has already been taxed.
In the case at hand, it was agreed in the loan agreement that the interest will be paid off only at maturity upon the repayment of the debt principal.
Quality tax advice, globally
The structuring of shareholder loans and their interest clauses should be planned in detail in the future in order to reach the desired economic result without the need to pay taxes before the income is actually realised.