The Finnish Supreme Administrative Court (SAC) issued a ruling regarding the security amount of environmental permits. The SAC’s ruling is a landmark case because it will change the established practice in most of the Regional State Administration Agencies. The case raised a question whether the environmental permit’s security should include value added tax or not. The SAC was not unanimous in its decision, and after voting 5–2, it concluded that VAT should be included.


Pursuant to the Finnish Environmental Protection Act, a mining company, as the holder of an environmental permit, was required to set up a security for a local authority in order to secure waste treatment of its activities. The Regional State Administration Agency had generally approved the Company’s calculation of costs in its plan for waste treatment but it had increased the amounts by including the VAT at the rate of 24%. The Company appealed to the Administrative Court.


Under the Environmental Protection Act, the purpose of a security is to secure waste treatment when ceasing activities. The security should cover any costs that may incur from waste treatment and closing down activities. This includes the costs of services by a third party service provider in case the company cannot take care of its waste treatment. The Finnish legislation and guidance on securities remain silent on whether cost calculations should include VAT or not.


VAT is an indirect tax levied on consumption and added onto suppliers’ sales prices. Suppliers charge VAT to buyers and account for the VAT to the Finnish state. In Finland governmental authorities do not have a VAT deduction right, but there is a specific procedure in place to keep VAT costs out of the budget of authorities. When a governmental authority acquires goods or services, VAT will not remain as a cost for the state since the state is also a tax recipient.


The SAC stated that this VAT matter is not regulated, and therefore the court needed to consider the different goals of environmental permits’ securities and value added taxation. The majority of the SAC concluded that the costs incurred on waste treatment, including VAT, need to be covered by security. In SAC’s view, the security itself and any invoices received by the local authority as a result of having to use the security. Regardless of the fact that the supplier finally pays the VAT to the Finnish state, the authority cannot be required to pay the amount of VAT from other funds than the security. The SAC concluded that VAT needs to be included in the security amount. The minority’s dissenting opinion ruled that VAT should not have been included in the security amount since VAT does not remain as a cost for the Finnish state.

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Taxand's Take

It is likely that VAT will be included in all waste treatment securities from now on. This results in additional costs for mining companies and other industrial enterprises, as the security needs to cover an amount that is 24% larger than previously. In any case, the ruling should ensure equal treatment of companies by harmonizing the practices of determining security amounts by the Regional State Administration Agencies.

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Article tags

Finland | Indirect Tax

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