Finland: Tax administration publishes guidance on the allocation of profits to PEs

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On 13 June 2017, the Tax Administration published guidance on the allocation of profits to a permanent establishment (PE). A permanent establishment in Finland is liable to Finnish taxation on profits arising in Finland. Permanent establishment income is to be attributed according to the arm’s length principle, based on the requirements of Finnish domestic law and bilateral tax agreements.

Foreign permanent establishment taxable income is calculated in a similar way as the taxable income of a Finnish limited liability company. In calculating the taxable income of the business of a permanent establishment, the Law on Business Income Taxation applies. Revenue from a permanent establishment includes all income generated by its activities. Income includes interest, dividends, royalties and gains on the assets of a permanent establishment. The deductible expenses are, in turn, the costs of obtaining and maintaining the income of a permanent establishment.

Based on the comparability analysis, market prices are verified by applying one of the OECD transfer pricing methods described in the guidelines. Any of the OECD methods may be used, but the choice of method must take into account the OECD’s guidelines on the application of the methods. The principal methods used are the Comparable Uncontrolled Price (CUP) method, the cost plus method and the resale minus method.

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