The Finnish CFC legislation aims to prevent the transfer of taxable income to low-tax countries. The Finnish CFC legislation implies that a Finnish corporation or individual may be subject to income tax for its share of the profit of a CFC regardless of whether these profits are distributed by the CFC to its shareholders or not. Unless a particular exemption applies, a foreign corporation may be regarded as a CFC, if:
a) the CFC is controlled by a Finnish tax resident(s). Control is deemed to exist if the Finnish tax resident(s) directly or indirectly hold jointly at least 50% of the capital or voting base of a CFC or have the right to at least a 50% of the profit of the CFC and
b) if the effective income tax rate in its domicile is less than 3/5 of the Finnish corporate income tax (i.e. 12%).
Certain business activities are excluded from the scope of application of the CFC rules. The CFC rules do not, for example, apply to profits mostly arising from industrial production, other corresponding production or shipping activities and sales or marketing activities related to the above-mentioned activities conducted in the entity’s state of residence.
Discover more: Government Bill Amending CFC Legislation Further Restricts the Use of Holding Companies