Finland to adopt the real seat principle in taxation

16 October 2020

In the beginning of October 2020, the Finnish Government issued a bill (HE 136/2020 VP) proposing the adoption of the real seat principle in taxation - a fundamental change to the determination of tax liability. 

According to current Finnish legislation, only corporates registered in Finland are considered resident in Finland and consequently subject to unlimited tax liability. The government bill proposes that starting from 2021 also corporates registered abroad (meaning entities that are considered comparable to certain Finnish corporate/non-transparent entities) could be considered resident in Finland (subject to unlimited tax liability) if their place of effective management is in Finland. A transitional provision until 2023 for UCITS- and AIF-funds in the EEA is included in the proposal, which is presently subjected to parliamentary committee for comments/debate.

According to the proposal, the starting point in determining the place of effective management is the place where the most important decisions related to daily management are made by the Board or similar corporate organ. The evaluation is ultimately based on case-by-case overall assessment, and facts such as the location of the head office and the executive management may be given weight in the assessment. 

Foreign entities (especially entities operating in group or fund structures) that have upper-level management presence in Finland should seek to ascertain their tax treatment from 2021 onwards to see if changes to the operations are necessary. The tax experts of PwC Finland are happy to assist.