Market overview

Although tax authorities are generally more aggressive around the world, this is nothing new for Finland where the administration has been highly proactive for many years. What is new is the amount of disputes. The amount of TP audits has increased, and this growth has been followed by a rise in disputes and litigation.

Nevertheless, the impact of BEPS on Finland has been minor compared to other jurisdictions because many of the measures are already in place in the country. "The majority of our tax legislation is already BEPS compatible and, as such, the updated OECD standards will not cause significant changes to local regulations. However, due to the cross-border nature of transfer pricing, the different approaches potentially assumed by other countries may also affect Finnish multinationals," said Petteri Rapo, managing partner at Alder & Sound. "In terms of level of scrutiny, the new guidance introduced by the OECD will naturally give the local tax authorities more opportunities for challenging the existing intra-group arrangements, especially with respect to intangibles and overall operating models." At the same time there has been a general increase in work around transactions. As the Finnish economy is recovering and multinationals are doing quite well at the moment, there is no shortage of work for TP practices. Likewise, the year has been stable for Finnish companies, as many legislative changes have been mostly procedural, and the government is unlikely to initiate major reform.

For instance, the EU's Anti-Tax Avoidance Directive (ATAD) means Finland has to tweak its laws, but the impact is relatively minor compared to other jurisdictions. The most significant change is to limitations on interest deductions because the rule does not distinguish between third-party and related-party interests. This rule limits the deduction of interest costs to 30%, whereas the Finnish system sets the threshold at 25%.

In contrast to a lot of other countries, the ATAD's general anti-avoidance rule (GAAR) is nothing new to the Finnish market. A version of the GAAR was implemented in Finland several decades ago. However, the level of scrutiny has changed in recent years with the interpretation of anti-avoidance rules being applied much more strictly than in the past.

Practitioners expect that the EU's agenda may set limits on tax avoidance in its traditional forms, but the reality of tax competition will continue to assert itself. This could mean a shift away from moving financial capital to moving human capital. Companies may resort to relocating substantial operations and not just financial assets.

Another area where there has been a great deal of change is technology. Tax and transfer pricing specialists in Finland are seeing the benefits of new automated tools, which can help streamline services and cut out old and inefficient practices. This is a part of a wider trend around the world.

"We're creating automated systems to improve our compliance process and increase efficiency," said Juha Sääskilahti, a senior tax partner at KPMG. "I think that this technological development, or even revolution, is now changing the content of our work and changing the methods of service delivery and how we work with our clients."

"We're seeing statutory compliance reporting being outsourced and this creates a huge business opportunity for us, but it's also an area where we need to improve in terms of service delivery. We can centrally provide these types of service and we're using automation to improve quality. This has a huge impact on business."

The trend of technological innovation looks set to continue for years to come, but the impact of automation is ambiguous. "Most of the local law firms are still trying to work out whether or not providing services for operational transfer pricing, in addition to traditional litigation and dispute resolution, is worth it from a business point of view," said Rapo.

"As digital solutions and automation are growing increasingly popular in daily transfer pricing work and law firms are traditionally stronger in dealing with more labour-intensive processes, it will be interesting to see whether the transfer pricing market outside of litigation is lucrative enough for them," said Rapo.

Tax authorities

Finnish Tax Administration
Finnish Tax Administration, OCR Service, Corporate, PL 200, 00052 VERO
Tel: 020 697 051 (from inside Finland); +358 20 697 051 (from outside Finland)

Tax rates at a glance

(As of July 2017)

Corporate income tax 20%
Capital gains tax 20%
Branch tax rate 20%
Withholding tax
Dividends 0/15/20% (b)
Interest 0/20% (c)
Royalties 20% (d)
Net operating losses (years)
Carryback 0
Carryforward 10

  1. The withholding taxes apply only to payments to non-residents. The rates may be reduced by tax treaties.
  2. 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:
    • It holds directly at least 10% of the capital of the payer.
    • The recipient of the dividend is a company qualifying under Article 2 of the EU Parent-Subsidiary Directive. Companies resident in EU or European Economic Area (EEA) member states are generally eligible for the tax exemption for dividends under the same conditions as comparable Finnish companies if the Finnish withholding taxes cannot be credited in the company's state of residence and if sufficient exchange of information may take place between Finland and the state of residence of the recipient. Dividends paid to a company resident in an EU/ EEA member state are subject to withholding tax at a rate of 15% if the shares constitute investment assets of the recipient company and the recipient owns less than 10% of the Finnish company.
  3. 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.
  4. No withholding tax is imposed on royalties paid to non-residents if all of the following conditions are satisfied:
    • The beneficial owner of the royalties is a company resident in another EU country or a permanent establishment located in another EU country of a company resident in an EU country.
    • The recipient is subject to income tax in its home country.
    • The company paying the royalties, or the company whose permanent establishment is deemed to be the payer, is an associated company of the company receiving the royalties, or of the company whose permanent establishment is deemed to be the recipient.
    A company is an associated company of another company if any of the following apply:
    • The first company has a direct minimum holding of 25% in the capital of the second company.
    • The second company has a direct minimum holding of 25% in the capital of the first company.
    • A third company has a direct minimum holding of 25% in both the capital of the first company and the capital of the second company. Royalties paid to resident individuals are normally subject to salary withholding.

Source: EY 2016 Worldwide Corporate Tax Guide

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