Anti-abuse clause applied in transfer taxation

Today, the Finnish Supreme Administrative Court (SAC) issued a ruling where the anti-abuse clause of the Finnish Transfer Tax Act was applied for the first time (KHO 2019:156). The ruling dealt with a situation where a Dutch Societas Europaea (SE) had been incorporated to acquire several subsidiaries in an intra-group transfer. Among these subsidiaries was a Finnish group company. Shortly thereafter, the SE transferred its domicile to Finland. The SAC held this as an abusive arrangement, as a direct acquisition of the Finnish subsidiary would have been subject to share transfer tax of 1.6%. The use of the SE was seen as an artificial part of a series of transactions. In practice, the ruling was based on the step transaction doctrine.

As a consequence of the ruling, it is likely that Finnish tax authorities will review share acquisition transactions more carefully in the future. Especially the use of temporarily existing companies and acquisition structures where the buyer’s real intention is to acquire shares subject to transfer tax, can be viewed as abusive more easily than before. It is important that all parts of a series of transactions and  the transaction as a whole are justified by sound business reasons.