Finland was one of the countries signing up to the multilateral instrument (MLI) in June 2017. The agreement lays out provisions for renegotiating double tax treaties (DTT) and imposing new minimal standards on treaty abuse and dispute resolution.
Out of the MLI signatories, Finland is one of 25 countries to sign up to Articles 18 to 26 – the arbitration provisions – of the MLI. These provisions lay out mandatory binding arbitration (MBA), particularly 'final offer' arbitration (FOA) where parties that avoid compromises risk the highest costs. These new provisions apply to more than 150 existing tax treaties.
Then there is the EU's Anti-Tax Avoidance Directive (ATAD), which is poised to be implemented by January 2019. The biggest changes are set to be the limitation of interest deductions.
"The implementation of ATAD will have an impact in terms of limitation rules and interest deductions, controlled foreign corporation legislation, though it is still to be seen how this will be implemented by EU member states," said Juha Sääskilahti, a senior tax partner at KPMG. "This is the area that we are really following. It's a big area of interest for our clients."
Finnish businesses and multinational companies need more tax advice in this area, especially as there is more scrutiny than ever from the tax authorities. This is a new development for many Western countries, but not Finland.
The heightened scrutiny around the world is driven by the BEPS project. However, Finland was early in adopting many of the anti-abuse measures and actually pre-empted BEPS by years and, in some areas, decades. This is partly why the newfound level of scrutiny around the world is nothing new in Finland.
What is new is the impact of the scrutiny on the tax market: an increase in tax audits, followed by a rise in tax disputes and, ultimately, demand for tax litigation services. These market trends look set to continue for years to come.
"We already have general anti-avoidance measures and other legislation, but there are some amendments," said Janne Juusela, head of tax at Borenius, Taxand Finland. "Otherwise we have not had any major domestic changes and it's probable that there won't be any major changes under this government."
Some practitioners argue that the prospects of political change may mean there will be less change, at least in the short-term. "The next elections are in 2019 and we are not, or at least I am not, expecting any major changes to Finnish domestic legislation," said Juusela.
On the other hand, the Finnish parliament is set to vote on increasing carbon tax in 2018, as part of a new strategy to gradually wean the country off of coal by 2030, as it builds new nuclear power plants. Finland depends on coal for approximately 10% of its energy usage. The shift to nuclear power is also intended to reduce the country's use of Russian energy imports in the long-term. But the fine details of this policy change have yet to be fleshed out.
It is still true that the majority of changes are gradual. The Finnish government will continue to make slight tweaks to tax policy to fit the ATAD and the OECD's recommendations by 2019.
Contact: Janne Juusela, Head of Tax Practice
Borenius is one of the leading commercial law firms in Finland. We provide innovative business law services in Finland, New York U.S. and Russia. Our Tax group provides services in the areas of direct and indirect taxation with particular emphasis on M&A, capital markets and finance, investment activities, formation of private equity funds and launching of new businesses.
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|Corporate Income Tax||20%|
|Capital Gains Tax||20%|
|Net Operating Losses (years)|
|Royalties from, for example, patents, know-how||20%||D|
A) The withholding taxes apply only to payments to non-residents. The rates may be reduced by tax treaties.
B) No withholding tax is imposed on dividends paid to a parent company resident in another European Union (EU) country if the recipient of the dividends satisfies the following conditions:
C) Interest paid to non-residents is generally exempt from tax unless the loan may be deemed comparable to an equity investment. In general, interest paid to resident individuals is subject to a final withholding tax of 30% if it is paid on bonds, debentures and bank deposits.
D) No withholding tax is imposed on royalties paid to non-residents if all of the following conditions are satisfied:
A company is an associated company of another company if any of the following apply:
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