International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Finland looks to limit the deductibility of interest

finland2.jpg

The Finnish government has released a draft bill to limit the deductibility of interest expenses in corporate taxation. The goal of the proposed regulation is to secure Finland's tax base and to balance competition between domestic and foreign groups of companies

juusela.jpg

Janne Juusela

Interest expenses are widely deductible in business taxation and only applying the transfer pricing regulation or the general provision for tax avoidance can restrict deductibility. Applying the new proposed limitation will not require any intention of tax avoidance or deviation from the arm's-length principle, but it will be applicable as a general rule. According to the draft, limitations would be applicable to corporations, partnerships, corresponding foreign entities and their permanent establishments in Finland. The limitations would be applied only if the interest expenses exceed the interest income received by the company, as in if the company has net interest expenses.

Interest paid to a related party would become non-deductible if the net interest expenses exceed 30% of the company's EBITDA. In the proposed regulation, group contributions would be included in EBITDA.

The related parties are defined similarly as in the Finnish transfer pricing regulation. This means that parties are deemed to be related, if the other party has directly or indirectly control over the other.

Also interest paid to a third party could be regarded as a related party interest in situations such as back-to-back arrangements or when a related party has secured a third party loan with a collateral. Applying limitations in these indirect situations would require a connection between the interest paid to the third party by the debtor and the collateral given to the third party by the related party.

According to the draft, a general safe haven of always deductible €500,000 ($650,000) would apply. This amount would include all interest expenses, whether paid to related parties or not.

The proposed regulation would allow an indefinite carry forward of non-deductible interest expenses. The use of the interest carried forward would require unused EBITDA in the fiscal year of use. Change of ownership would not affect the possibility to carry non-deductible interest expenses forward.

Janne Juusela (janne.juusela@borenius.com)

Borenius – Taxand

Tel: +358 9 615 333

Website: www.borenius.com

more across site & bottom lb ros

More from across our site

David Pickstone and Anastasia Nourescu of Stewarts review the facts and implications of Ørsted’s appeal at the Upper Tribunal.
The Internal Revenue Service will lose the funding as part of the US debt limit deal, while Amazon UK reaps the benefits of the 130% ‘super-deduction’.
The European Commission wanted to make an example of US companies like Apple, but its crusade against ‘sweetheart’ tax rulings may be derailed at the CJEU.
The OECD has announced that a TP training programme is about to conclude in West Africa, a region that has been plagued by mispricing activities for a number of years.
Richard Murphy and Andrew Baker make the case for tax transparency as a public good and how key principles should lead to a better tax system.
‘Go on leave, effective immediately’, PwC has told nine partners in the latest development in the firm’s ongoing tax scandal.
The forum heard that VAT professionals are struggling under new pressures to validate transactions and catch fraud, responsibilities that they say should lie with governments.
The working paper suggested a new framework for boosting effective carbon rates and reducing the inconsistency of climate policy.
UAE firm Virtuzone launches ‘TaxGPT’, claiming it is the first AI-powered tax tool, while the Australian police faces claims of a conflict of interest over its PwC audit contract.
The US technology company is defending its past Irish tax arrangements at the CJEU in a final showdown that could have major political repercussions.