Finland’s Government Proposal HE 227/2026 vp would introduce an exception to interest deduction restrictions for qualifying long-term, supply-critical infrastructure projects operated by designated critical entities. The measure is proposed to take effect on 1 January 2027, subject to specified eligibility, financing, and accounting requirements.
Finland’s Parliament is reviewing Government Proposal HE 227/2026 vp, part of the Government’s 2027 Budget package, which proposes a new exception to the country’s interest deduction restriction rules.
This legislative change allows critical entities under the CER Directive to deduct otherwise non-deductible net interest expenses incurred from loans that finance long-term, supply-critical infrastructure projects. The initiative aims to safeguard key societal functions and align national tax rules with European Union directives and state aid frameworks.
The key changes are as follows:
Entity qualification & CER status
The borrowing entity must be designated as a critical operator under Finland’s Act on Protecting Critical Infrastructure and Improving Resilience (CER Act) or be subject to equivalent requirements. Where the designation is granted at the corporate group level, the individual taxpayer must provide explicit evidence that the designation applies to the specific entity and the relevant project.
European Union geographic nexus
The project operator, foreign capital expenses (interest costs), assets, and generated income must all be located within the European Union.
Project & asset qualification
The loan must finance a long-term project essential to Finland’s security of supply and involving the development, operation, production, or maintenance of large-scale critical infrastructure needed to provide essential services.
Critical infrastructure includes assets, facilities, equipment, networks, or systems, while essential services support societal functions, economic activity, public health, public safety, or the environment.
The project must last at least 10 years.
Interest expense & lender counterparty restrictions
- Targeted expense scope: The expanded deduction applies strictly to net interest expenses arising from loans raised to finance the qualifying infrastructure project.
- Third-party & public sector focus: The exception primarily benefits net interest paid to third-party lenders or public-sector owners (and their group companies). Interest paid to private equity owners or related group entities remains restricted under standard interest deduction rules.
- Deduction formula: The additional deductible amount beyond standard limits is calculated based on the ratio of interest paid to non-private owners relative to total project net interest expenses.
Activity allocation & de minimis threshold
- Separate accounting: Entities with multiple business activities must separately track income, expenses, assets, and liabilities associated with the critical infrastructure project.
- 10% de minimis rule: If non-project activities account for less than 10% of total turnover, separate project accounting is waived, and the entity’s operations are treated entirely as part of the critical infrastructure project.
Timeline and implementation provisions
The legislation is proposed to take effect on 1 January 2027, applying first to the 2027 tax assessment year.
Undeducted net interest expenses from 2026 may be deducted in the 2027 assessment. If the exception is claimed, it must be applied consistently throughout the project’s duration.
If the entity loses its critical operator status, the general interest deduction limitation rules will apply from the beginning of the following tax year.
