Global Tax Alert | 24 October 2013

Finland's draft Bill reduces corporate income tax rate and introduces additional restrictions on corporate tax deductions

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On 14 October 2013, Finland’s Ministry of Finance circulated for comments a draft Government Bill on amending corporate tax rules and the treatment of fund distributions by corporations.1 The draft Bill contains tax changes which were already included in the Government’s budget proposal earlier this year. It also proposes several additional changes to the tax treatment fund distributions.

  • 20% corporate income tax rate will be applied as from the fiscal year 2014 onwards. However, the current corporate income tax rate of 24.5% will be applied in the fiscal year 2014 in cases where the financial year of the company has been changed on 21 March or later so that the financial year of the company will be extended to 2014.
  • The long-life movable fixed assets will be depreciated in accordance with the straight-line method, asset by asset, over its useful life.
  • The return of invested unrestricted equity (in Finnish SVOP) to shareholders in listed companies will be taxed as dividend income. The return of the invested unrestricted equity from a non-listed company will be treated as a repayment of capital subject to certain conditions.
  • Dividends received by a non-listed company from a listed company will be fully taxable (at the moment 75% taxable), unless the recipient of the dividend holds at least 10% of the dividend paying company. Dividends received on shares belonging to so called investment assets held by financial institutions will be fully taxable income with minor exceptions.
  • The restrictions on interest deductibility will be tightened. The restrictions will apply as from the fiscal year 2014. The amount of deductible net interest, which will be calculated based on the adjusted taxable profit, will be reduced from 30 % to 25%. In addition, losses on financial assets will no longer be added back to the adjusted taxable profit.

Assets with a useful life of at least 10 years will be regarded as long-life movable fixed assets. According to the draft Bill such assets include, for example, large industry machines, airplanes, ships, long-life transportation vehicles as well as power equipment and power networks. The new rules would apply to assets which have been in business use starting as from the fiscal year 2014 onwards.

The draft Government Bill has been circulated for comments. The final Government Bill is likely to be given to the Parliament during November.

Future Alerts will cover legislative developments.

Endnotes

1. The draft Government Bill can be found on the Ministry of Finances’ webpage (www.vm.fi).

For additional information with respect to this Alert, please contact the following:

Ernst & Young Oy, Helsinki
  • Tomi Viitala
    +358 45 7731 2025
    tomi.viitala@fi.ey.com
  • Markku Järvenoja
    +358 40 500 6658
    markku.jarvenoja@fi.ey.com
  • Harri Pettersson
    +358 40 556 1921
    harri.pettersson@fi.ey.com

Ernst & Young LLP, Scandinavian Tax Desk, New York
  • Martin Norin
    +1 212 773 2982
    martin.norin@ey.com

EYG no. CM3908