Taxing authority and tax law
Tax authority: Finnish Tax Administration
Tax law: Finnish Fiscal Assessment Act §§14 a-c, 31, 32, 75 and 89
Relevant regulations and rulings
Government Proposal and Tax Administration’s Guidelines of 19 October 2007
OECD guidelines treatment
The Finnish regulations and tax practice in general follow the OECD Transfer Pricing Guidelines and the approaches presented in the OECD Discussion Draft on Business Restructurings.
Regarding the business restructurings, the Finnish Tax Administration’s Guidelines state that the business restructurings should be examined as a whole from a transfer pricing perspective. However, the guidelines state that the specific circumstances and effects of the restructuring on the material functions of parties should be taken into account and the arm’s length principle has to be utilized. Nevertheless, the guidelines are general in nature and do not specifically state how the tax authorities should consider individual cases.
There is no established case law on business restructurings in Finland. However, there have been some advance rulings relating mainly to the transfer and valuation of intangibles.
Priorities/pricing methods
Taxpayers may choose any OECD transfer pricing method as long as the chosen method results in an arm’s length pricing for the intra-group transaction. In its selection of the method, a taxpayer should take into consideration the aspects regarding the application of methods stated in the OECD Transfer Pricing Guidelines.
Transfer pricing penalties
A tax penalty of up to €25,000 can be imposed for a failure to comply with the transfer pricing documentation requirements, even if the pricing of intra-group transactions has been at arm’s length. In addition, the possible adjustment of taxable income may result in a separate tax penalty of up to 30% of the adjusted amount of income as well as penalty interest.
Penalty relief
Penalties can be reduced or removed if the taxpayer presents supplementary transfer pricing documentation that supports the arm’s length nature of the intra-group transactions. The determination of penalties will be made on a case-by-case basis.
Documentation requirements
Transfer pricing legislation came into effect on 1 January 2007. The provisions contained in the law apply to financial periods beginning on 1 January 2007 or later.
The transfer pricing documentation aims to prove that the prices used in cross-border intra-group transactions are acceptable from the perspective of the tax authority. According to the law, the documentation obligation applies to the following entities:
- Group companies if the group employs at least 250 employees, regardless of the amount of turnover or assets
- Group companies if the group employs less than 250 employees and if the company’s turnover exceeds EUR 50m and their assets are worth more than EUR 43m
- The Finnish branches of a foreign company if the above conditions are met by this company
- Companies which are not small- and medium-size enterprises, as defined by criteria (related to, for example, a company’s independence) contained in the European Commission’s Recommendation on the definition of micro, small- and medium-sized enterprises (2003/361/EC)
When calculating the amount of employees, turnover or assets of an enterprise or a branch owned by a foreign company, information regarding the foreign owners is also taken into account in pro rata.
Group companies are required to prove the arm’s length nature of cross-border intra-group transactions by preparing transfer pricing documentation. According to the law, the documentation should contain the following information:
- A description of the business
- A description of associated enterprises
- Information on transactions between associated enterprises
- Functional analysis regarding transactions between associated enterprises
- A comparability analysis, including available information on comparables
- A description of the transfer pricing method and its application
Less extensive documentation is required if the total amount of transactions between two parties during a fiscal year does not exceed EUR 500,000.
Documentation deadlines
A taxpayer has to submit the transfer pricing documentation for a specific fiscal year within 60 days upon a request of the tax authorities, but not earlier than six months after the end of the financial period. The additional clarifications concerning the documentation have to be submitted within 90 days of a request by the tax authorities.
Statute of limitations on transfer pricing assessments
The time limit for the adjustment of income due to the failure to apply arm’s length principles to the pricing of a transaction is five years from the beginning of the following year during which the taxation was finalized.
Return disclosures/related-party disclosures
Based on Paragraph 26.4 of the Taxation Procedure Act, if the other party of the transaction is a non-resident, and if the tax authorities cannot obtain adequate information on the transaction by using an appropriate international treaty, the taxpayer is responsible for presenting such information.
Audit risk/transfer pricing scrutiny
The tax authority is being very active and the risk for transfer pricing audit is high. All kinds of intra-group transactions have been under scrutiny in tax audits.
APA opportunity
Advance rulings are available in Finland. There is no legislation for APAs; however, the tax authorities have indicated their willingness to utilize them.
Return to the "Transfer pricing country guide" page
