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.
Finland has signed the Multilateral Convention (“Multilateral Instrument” or “MLI”) to implement tax treaty related measures to prevent base erosion and profit shifting (BEPS).
On 7 June 2017, the Minister for Foreign Trade and Development Kai Mykkänen signed the multilateral instrument to amend tax treaties to combat activities such as treaty shopping. The aims of the changes set out in the Convention include preventing unjustified advantages being gained through tax treaties and preventing the non-payment of taxes.
The BEPS Convention has been shaped in such a way that a country may decide not to adopt an optional provision given as a recommendation, and this is done by specifying a reservation regarding that provision. Furthermore, some of the minimum standards may be met in different, alternative ways.
Finland has selected those provisions of the Convention that are minimum standards: the preamble text under Article 6; the provisions of Article 7 on the prevention of treaty abuse; and the provisions of Article 16 on the mutual agreement procedure. In addition, Finland selected the provision under Article 17 on corresponding adjustments to the price, for inclusion in Finland’s tax treaties that do not yet incorporate this. Finland also selected arbitration under certain restrictions.
Finland is committed to the exchange of the country-by-country (CbC) report. On March 8, 2017, an official Gazette was published by the Ministry of Finance. The Gazette states that the government is willing to comply with the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country reports and is applied it as from 27 January 2016.
An updated version of the guidance on withholding tax on dividends, interest and royalties paid to non-residents has recently been published by the Finnish Tax Administration.
According to updated version, foreign corporate entities and foreign citizens who live overseas are not fully liable to pay tax i.e. they are nonresidents. They must pay tax in Finland on their income from Finnish sources. When Finnish citizens move away to live overseas they do not become nonresidents until after the beginning of the fourth calendar year after they moved away. If necessary, taxpayers can submit an application for a tax-at-source card to the local tax office in order to have the tax office examine the extent of their tax liability in Finland.
Unless bilateral tax treaties with Finland set a lower percentage or unless the income is exempt from tax withholding, the payer of dividends, interest or royalties to nonresidents must withhold tax upon payment at the specific rate. Tax returns on self-assessed taxes, including dividend withholding tax, are to be filed electronically. If the 12th falls on a Saturday, Sunday or a public holiday, the last day to file is extended to the next business day. Returns filed online and on paper have the same due date. Filing the tax return on the paper form is allowed only under exceptional circumstances. Self-assessed taxes (previously often referred to as Tax Account taxes) are paid quoting the bank reference number for self-assessed taxes.
Tax withheld at source on dividends is Type 39, and on interest and royalties is Type 69.
The income tax treaty between Finland and Turkmenistan entered into force on 10 February 2017. The agreement was signed in the capital city of Turkmenistan, Ashgabat, in December 2015. The agreement follows the model tax treaty of the OECD, excluding taxation of income earned in the form of royalties.
Finland approved the procedures required for the entry into force of the agreement on 16 December 2016. Turkmenistan has informed that it completed its own procedures at the beginning of 2016.
The Finnish government is going to add e-service rule in value added tax system from February 1 to mitigate the VAT refund fraud. Taxpayers who are registered for value-added tax must use the MyTax e-service when providing their bank account details.
Paper filing will not be permitted for corporate taxpayers and all VAT-registered taxpayers unless there is a special reason for it. Examples of such a special reason include a situation where online filing of a notice is not possible due to technical difficulties.
The Exchange of Information Agreement of 2016 regarding tax matters (TIEA) between Finland and United Arab Emirates (UAE) has been ratified on 15th January 2017 by United Arab Emirates. The treaty has been ratified by the way of Decree No. 221/2016.