The objective of the proposal is that national legislation, in line with the 2010 OECD Model Tax Convention’s business profits article, reinforces the importance of the arm’s length principle and the separate entity principle when allocating income to a permanent establishment.
Finland’s Parliament is reviewing draft bill HE 164/2025 vp, which proposes amendments to domestic regulations on attributing profits to permanent establishments on 12 November 2025.
The proposal suggests amending the Income Tax Act, the Act on Taxation of Business Income, and the Act on the Elimination of Double Taxation on International Income.
The Income Tax Act will include more detailed provisions on the allocation of income to a permanent establishment. Income will be allocated to a permanent establishment in accordance with the business profits article included in the OECD Model Tax Convention, as of 2010, whenever a corresponding article exists in the applicable tax treaty.
In addition, the proposal suggests regulating the allocation of income to a permanent establishment in situations where the business profits article in the applicable tax treaty deviates from the 2010 OECD Model Tax Convention, as well as in cases where no applicable tax treaty exists.
Moreover, the Act on Taxation of Business Income will be amended to explicitly regulate the consideration of internal payments between parts of a company in calculating taxable income.
The Act on the Elimination of International Double Taxation will be amended to include the provisions proposed in the Income Tax Act when applying the credit method for eliminating double taxation for head offices located in Finland.
The objective of the proposal is that national legislation, in line with the 2010 OECD Model Tax Convention’s business profits article, reinforces the importance of the arm’s length principle and the separate entity principle when allocating income to a permanent establishment.
The aim is to ensure that Finnish national legislation will no longer restrict the application of the business profits article under the 2010 Model Tax Convention in cases where the relevant provision has been included in a tax treaty.
Finland has not yet concluded tax treaties containing the business profits article of the 2010 OECD Model Tax Convention, but this amendment will enable such treaties to be concluded.
The laws are intended to take effect on 1 January 2027 and will first apply to taxation for 2027.
