Losses of a Spanish subsidiary were not considered to be final for the purposes of group deduction


After repeated requests from the European Commission, the Finnish government enacted a law that would allow a Finnish parent company to deduct the amount of so-called final losses of its foreign EU/EEA resident subsidiary in Finland, by way of a group deduction, should the losses be deemed final in accordance with EU case law. The law entered into force on 1 January 2021.

The Supreme Administrative Court has given its first ruling under the new law. According to the ruling, the Finnish parent company did not have the right to deduct the losses of its Spanish subsidiary if the subsidiary was liquidated, as the losses were not considered to be final.

In the case, the Spanish subsidiary had tax losses from tax years 2012-2016. The subsidiary had been profitable during the years 2017-2019 and had utilized some of the tax losses against the profits. In addition, there were two other Spanish subsidiaries, so the group could have restructured the Spanish operations. And finally, the assets of the Spanish subsidiary exceeded the liabilities according to the balance sheet prepared for the accounting period 2019. Given all this, the Court concluded that the losses were not final in the way determined in EU case law.

In practice, the ruling affirms that the threshold for deducting losses of a foreign subsidiary continues to be high even under the new legislation and EU case law will remain the primary source for interpretations of the finality of losses.

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Rami Karimeri

Rami Karimeri

Partner, Corporate Taxation, PwC Finland

Tel: +358 (0)20 787 7841

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