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Janne Juusela |
The Finnish Supreme Administrative Court (SAC) decided on January 31 2011 (KHO:2011:10) to ask for a preliminary ruling from the European Court of Justice (ECJ) concerning the question whether a tax neutral share exchange can be completed between a company residing in an EU country and a company residing in an European Economic Area (EEA) country such as Norway, Iceland and Liechtenstein.
The EU Merger Directive provides a possibility to carry out tax neutral share exchanges between companies resident in the EU member states, provided such companies are subject to general corporate taxation in that country and have certain specified company forms. The directive is implemented in Finnish domestic tax law in such a way that tax neutral share exchanges are allowed equally for domestic and EU companies. Thus, companies residing in EEA countries (not belonging to EU) seem to fall outside the scope of the directive and the Finnish domestic provisions concerning tax neutral share exchanges.
In the case at hand, the Finnish limited liability company A Oy initially asked from the Central Tax Board whether it could exchange the shares it owned in the Finnish company C Oy with the shares in the Norwegian company B AS, so that B AS would become the sole owner of C Oy. A Oy would receive approximately 6% of the shares in B AS. It was apparent that should the transferring and the receiving companies be resident within the EU, the requirements in the domestic law would be met and therefore, no income tax consequences should result due to the exchange of shares. As the other company was nevertheless tax resident in Norway (which is not a member of the EU), the domestic rules on tax neutrality were not directly applicable.
Taking into account Norway's position as a member of the EEA, the Central Tax Board ruled (55/2008) that the provisions concerning the freedom of establishment in the EU treaty and in the EEA treaty necessitated the domestic tax law to be interpreted so that also exchanges of shares with Norwegian companies can be completed tax neutrally. Following an appeal by the tax administration and the reply by the taxpayer as well as the statement by the ministry of finance, the SAC decided to refer the case to the ECJ.
Janne Juusela (janne.juusela@borenius.com)
Attorneys at law Borenius & Kemppinen – Taxand
Tel: +358 9 615 333
Website: www.borenius.com
