On 23 September 2019, the Finnish Supreme Administrative Court (SAC) ruled that a shareholder loan acquired from the seller in a share transaction shall not be included in the transfer tax base, thus not forming a part of the aggregate consideration paid for the shares (SAC 2019:121). On 31 October 2019, two further rulings were issued (SAC 2019:135 and SAC 2019:136). The new rulings are relevant for the purpose of structuring transactions concerning both operating companies and real estate companies.
As regards real estate transactions, loans held by a mutual real estate company (MREC) are subject to transfer taxation, as a rule. This is the case irrespective of whether the debt funding has been taken from the seller or from a third party financing institution and whether the loan is refinanced in connection with the share transaction or not.
If the target company in a share transaction is an ordinary real estate company (OREC), a real estate holding company or an operating company, transfer tax shall normally not be payable on the target company’s loan, if the purchaser acquires the loan receivable directly from the seller. The same would apply in most cases where a third party loan is refinanced in connection with the transaction, provided that the target company is solvent and capable of serving the debt by its own means.
Due to the recent rulings, share transactions in Finland should be structured carefully in order to avoid paying any unnecessary transfer taxes.
For more information, please contact Sebastian Kellas.