Post by Sapphire Capital on Jul 12, 2008 0:08:03 GMT 4
Finland: Changes to Finnish asset transfer tax rules and new tax ruling on the transfer of securities
Finland has traditionally levied a 1.6 % tax on transfer of shares and other instruments entitled to shares of Finnish companies if the transfer is executed outside of a stock exchange, and if one of the parties of the transfer is a Finnish tax resident. The party liable to pay the tax is the transferee of the securities.
Amendment of asset transfer tax rules
Due to the implementation of directive 2004/39/EC on markets in financial instruments, customarily referred to as Markets in Financial Instruments Directive (MiFID), and related provisions in Finnish law, the Finnish asset transfer tax rules were amended on November 9 2007.
Pursuant to the new rules, in addition to transfers executed on the stock exchange, a transfer of a security is exempt from the 1.6 % asset transfer tax if the security has been admitted to trading on a regulated market within an EEA member state or outside of the EEA in a state that recognizes the provision of executive assistance between competent authorities. Furthermore, the exemption covers securities that are admitted to trad-ing on multilateral trading facilities (MTFs), provided that such admission has been granted on the basis of an application or at least consent by the issuer. As regards MTFs, it is further required that the security is incorporated in the Finnish book-entry system maintained by the Finnish Central Securities Depository or in a corresponding foreign register system.
In order to be exempt from the transfer tax, the transaction shall be carried out through a securities interme-diary, who shall either act as counterparty or as broker in the transaction. In addition, the transaction must be made for a fixed pecuniary consideration.
Certain separately defined transfers such as those relating to capital investment, distribution of funds or ex-change of shares, or artificial listings carried out for tax evasion purposes are not covered by the exemption. In addition, the exemption is excluded in a squeeze-out situation as provided for in the Finnish Companies Act.
New ruling on the asset transfer tax liability on the acquisition of shares as a contribution in kind
In a recent judgment of the Finnish supreme administrative court (2008:15), the question at hand was whether Finland had a right to impose asset transfer tax on a company domiciled in Luxembourg due to transfer of Finnish securities, which the Luxembourgian company had received as a contribution in kind in a share exchange. In the case, the Finnish company had transferred its entire shareholding to another Finnish company and, at the same time, the Luxembourgian company had increased its capital by amount equal to the value of the shares received as consideration and, had issued new shares in favor of the transferor. The Luxembourgian company was also liable to pay a capital duty of 1% in Luxembourg on the capital acquired by the exchange of shares.
Pursuant to the Finnish asset transfer tax rules, transfer tax is charged on the transfer of securities to a company, which gives its own shares in return. Article 10 of directive 69/335 concerning indirect taxes on the raising of capital provides that, apart from capital duty, the member states may not charge any taxes among other things in respect of increases in the capital of a company. Accordingly, Finland does not charge any taxes when the company's share capital is increased against a pecuniary consideration.
Pursuant to the exemption to the above main rule under article 12(1) (a) of the directive, the member states may charge, inter alia., duties on the transfer of securities, whether charged at a flat rate or not. Thus, charging transfer tax on transfer of securities, for example, is allowed. However, article 12(1) (c) provides that the member states may charge transfer duties on assets of any kind transferred to a company, in so far as such property is transferred for a consideration other than shares in the company. Based on the wording of this provision, it seems that the transfer tax may not be charged when assets are transferred against shares.
The Finnish supreme administrative court made a reference for a preliminary ruling to the European Court of Justice, which gave its judgment on October 25 2007 (C-240/06). In its judgment, the Court held that directive 69/335 must be interpreted as meaning that article 12 (1) (c) does not apply to the charging of a duty, such as capital transfer tax, where securities are transferred as a contribution to a company which gives new shares of its own as consideration for that transfer. Thus, the Court held that Finland had a right to charge transfer tax on the acquisition of shares as a contribution in kind. On February 29 2008, the Finnish supreme court decided the case in accordance with judgment issued by the European Court of Justice.
source: by: Sari Laaksonen (sari.laaksonen@castren.fi) of Castren & Snellman
Finland has traditionally levied a 1.6 % tax on transfer of shares and other instruments entitled to shares of Finnish companies if the transfer is executed outside of a stock exchange, and if one of the parties of the transfer is a Finnish tax resident. The party liable to pay the tax is the transferee of the securities.
Amendment of asset transfer tax rules
Due to the implementation of directive 2004/39/EC on markets in financial instruments, customarily referred to as Markets in Financial Instruments Directive (MiFID), and related provisions in Finnish law, the Finnish asset transfer tax rules were amended on November 9 2007.
Pursuant to the new rules, in addition to transfers executed on the stock exchange, a transfer of a security is exempt from the 1.6 % asset transfer tax if the security has been admitted to trading on a regulated market within an EEA member state or outside of the EEA in a state that recognizes the provision of executive assistance between competent authorities. Furthermore, the exemption covers securities that are admitted to trad-ing on multilateral trading facilities (MTFs), provided that such admission has been granted on the basis of an application or at least consent by the issuer. As regards MTFs, it is further required that the security is incorporated in the Finnish book-entry system maintained by the Finnish Central Securities Depository or in a corresponding foreign register system.
In order to be exempt from the transfer tax, the transaction shall be carried out through a securities interme-diary, who shall either act as counterparty or as broker in the transaction. In addition, the transaction must be made for a fixed pecuniary consideration.
Certain separately defined transfers such as those relating to capital investment, distribution of funds or ex-change of shares, or artificial listings carried out for tax evasion purposes are not covered by the exemption. In addition, the exemption is excluded in a squeeze-out situation as provided for in the Finnish Companies Act.
New ruling on the asset transfer tax liability on the acquisition of shares as a contribution in kind
In a recent judgment of the Finnish supreme administrative court (2008:15), the question at hand was whether Finland had a right to impose asset transfer tax on a company domiciled in Luxembourg due to transfer of Finnish securities, which the Luxembourgian company had received as a contribution in kind in a share exchange. In the case, the Finnish company had transferred its entire shareholding to another Finnish company and, at the same time, the Luxembourgian company had increased its capital by amount equal to the value of the shares received as consideration and, had issued new shares in favor of the transferor. The Luxembourgian company was also liable to pay a capital duty of 1% in Luxembourg on the capital acquired by the exchange of shares.
Pursuant to the Finnish asset transfer tax rules, transfer tax is charged on the transfer of securities to a company, which gives its own shares in return. Article 10 of directive 69/335 concerning indirect taxes on the raising of capital provides that, apart from capital duty, the member states may not charge any taxes among other things in respect of increases in the capital of a company. Accordingly, Finland does not charge any taxes when the company's share capital is increased against a pecuniary consideration.
Pursuant to the exemption to the above main rule under article 12(1) (a) of the directive, the member states may charge, inter alia., duties on the transfer of securities, whether charged at a flat rate or not. Thus, charging transfer tax on transfer of securities, for example, is allowed. However, article 12(1) (c) provides that the member states may charge transfer duties on assets of any kind transferred to a company, in so far as such property is transferred for a consideration other than shares in the company. Based on the wording of this provision, it seems that the transfer tax may not be charged when assets are transferred against shares.
The Finnish supreme administrative court made a reference for a preliminary ruling to the European Court of Justice, which gave its judgment on October 25 2007 (C-240/06). In its judgment, the Court held that directive 69/335 must be interpreted as meaning that article 12 (1) (c) does not apply to the charging of a duty, such as capital transfer tax, where securities are transferred as a contribution to a company which gives new shares of its own as consideration for that transfer. Thus, the Court held that Finland had a right to charge transfer tax on the acquisition of shares as a contribution in kind. On February 29 2008, the Finnish supreme court decided the case in accordance with judgment issued by the European Court of Justice.
source: by: Sari Laaksonen (sari.laaksonen@castren.fi) of Castren & Snellman