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Finland softens interest deduction restriction

09 October 2012

Matthew Gilleard - ITR

Earlier this year, the Finnish government announced its intention to introduce an interest deduction limitation for companies. The EBITDA-based interest deduction limitation proposal was met with opposition from various lobbyists, and the proposals have subsequently been amended.

The new rules should be applicable from the beginning of tax year 2014.

Before the April 12 draft proposal to limit the deductibility of interest paid by corporations or partnerships, Finland was quite liberal in the interest deductibility area, with an absence of thin capitalisation rules, for example.

The April draft proposed that net interest costs would be tax deductible only up to the larger of €500,000 ($646,800) or 30% of the EBITDA of the company. However, interest paid to non-dependent parties would be deductible.

"A back-to-back loan or collateral given by a dependent party to a non-dependent lender would taint the interest paid to such lender for the purposes of the restrictions and thus make it non-deductible," said Antti Lehtimaja, head of tax at Krogerus. "The restrictions were meant to...



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