Monday, 2 February 2015

Finland: proposed changes to transfer pricing rules

Finland’s government issued a draft proposal on 7 January 2015 that would amend the transfer pricing rule in section 31 of the Tax Procedure Act.
The contemplated change follows a decision issued by the Supreme Administrative Court in July 2014, in which the court held that section 31 only allows the Finnish tax authorities to make a transfer pricing adjustment (in accordance with the OECD guidelines); it does not permit the authorities to also recharacterize a transaction, unless the conditions for application of the general anti-avoidance rule (GAAR) in section 28 of the Tax Procedure Act also are met.
The case involved a situation in which the tax authorities recharacterized a hybrid instrument as equity (rather than debt) and disallowed a deduction for the related interest expense. The draft proposal would add a specific GAAR clause to section 31 that would grant the tax authorities the power to recharacterize and disregard transactions where the legal form of the transaction does not correspond with its commercial substance. Although the draft generally targets financing-related arrangements, the actual wording of the proposed rule is not limited to financing transactions.
Comments on the draft proposal are due on 20 February 2015. As yet, no effective date has been announced for the amended rule.
Source: Deloitte