Finnish Group Contribution

1

• Finnish Group Contribution
• - 90 holding
• deductible to contributor
• taxable income to recipient
• gt more neutral tax treatment
• The Act on Group Contribution Sec. 3
• gt Only between Finnish companies?

A Oy
C Oy
B Oy
2

• Dual residence conflict?
• place of management gt the tax treaty state of
  residence of the Finnish company abroad
• gt KHO 2003/1484 (33)
• gt deductible only if PE in Finland

management DK
FIN Oy
Group contribution?
FIN Oy
3
Holding via foreign companies?
Oy
Group contribution?
AB
Oy

• tax treaty non-discrimination articles
• EC Treaty freedom of establishment
• gt KHO 1992/536 and 537 (B 509 and 510)
• C-200/98 X and Y
• gt deductible if EU, EEA or tax treaty state

4
Held via non-tax treaty state companies?
USA
USA
Bermuda
Bermuda
UK
FIN Oy
FIN Oy

• Group contribution?
• KHO 2004/1525 (65)
• indirectly held by a tax treaty state company
• gt Tax treaty non-discrimination article requires
• (USA-Finland treaty)

5
Contributor or Recipeint from EU?
NL BV
SWE AB
FIN Oy
Group contribution?
AB FIN KTP
KHO 2003/2773 (79) gt deductible, if a PE in
Finland
6
Contributor or Recipient from EU no PE in
Finland?
UK Ltd
NL BV
Group contribution?
NL BV
Esab Oy
KHO 2005/1215 (29) (KVL 39/2004), C-231/05
Esab Deduction even though Finland cannot tax the
recipient?  EC Treaty ? - Art. 43 (freedom of
establishment) - Art. 56 and 58 (free movement of
capital)  Parent-Subsidiary Directive?
7
Three different situations
A
B
C

• From Finnish parent to EU subsidiary
• From Finnish subsidiary to EU parent (Esab)
• From Finnish sister to EU sister

8

• From Finnish parent to EU subsidiary
• - Finnish parent Finnish sub gt deduction
• - Finnish parent EU sub gt no deduction
•  
• gt different treatment of Finnish parents
• that use the freedom to establish
• the situation of the parents is different only by
  the place of establishment of their subsidiaries
• gt freedom of establishment
•   gt restriction?

9
C-168/01, Bosal Holding BV v. NL, 18.9.2003 - no
deduction for costs related to holdings in
non-resident subsidiaries   Freedom of
establishment? P-S directive gt possible that
charges relating to the holding of the subsidiary
may not be deductible for the parent   freedom
of establishment gt must not restrict the
establishment of subsidiaries in other Member
States gt restriction
10

• 2. From Finnish subsidiary to EU parent (Esab)
• - Finnish sub Finnish parent gt deduction
• - Finnish sub EU parent gt no deduction
•  
• gt different treatment of Finnish subsidiaries
  having Finnish or foreign parents
•  
• makes the establishment of foreign parents to
  Finland less attractive than the establishment of
  Finnish parents
• - Art. 24(5) of the OECD Model?

11
C-397/98 Metallgesellschaft Ltd and others,
C-410/98 Hoechst AG, Hoechst UK Ltd and
Commissioners of Inland Revenue 8.3. 2001
German company
UK company
dividend
dividend
UK company
UK Company
- advance corporate tax (ACT), because dividend
recipient was non-resident
- no ACT, if group income election
gt differen treatment of a subsidiary with a
domestic or foreign parent? Freedom of
establishment? gt Different treatment not
justified
12

• 3. From Finnish sister to EU sister
• - Finnish sub Finnish sub gt deduction
• - Finnish sub EU sub gt no deduction
•  
• gt different treatment of Finnish subsidiaries
  having Finnish or foreign sisters
• the Finnish regime makes it less attractive for
  Finnish or foreign parent companies to establish
  subsidiaries also in other Member States and not
  only in Finland
• the situation of the two Finnish subsidiaries is
  different only by the place of the sister
  companys establishment

13
The Parent-Subsidiary Directive?   - concerns
distributions of profits   - does not cover group
taxation in other respects   gt no relevance in
Esab Case
14
Justifications? - effectiveness of fiscal
supervision? - reduction in tax revenue? -
prevention of abuse? - territoriality and
cohesion?   - no deduction if no power to tax
the recipient? gt no direct link separate tax
subject gt the aim and logic of the rules may
require? - the aim is neutrality but not and
advantage to a group compared to single
companies gt deduction only if taxable to
the recipient?   gt the Finnish rules go well
beyond what is necessary
15

• Concluding Remarks
•  
• - conflict with free movement and establishment
•  
• - no justification
•  
• group contribution system will probably be
  replaced
• - need for positive harmonization