Proposed Amendments to the Finnish Regulations Concerning the Taxation of Share Exchanges

Under Finnish law, a tax neutral exchange of shares is possible when a limited liability company acquires shares in another limited liability company to give it the majority of the voting rights, or when a company, which already has some shares, acquires even more to give it a majority. This is achieved by the acquiring company issuing new shares in exchange for shares in the acquired company. The proportion of the consideration in cash should not exceed 10% of the nominal value of the shares issued as consideration.

Current Finnish tax law includes an exit tax provision whereby the tax neutrality is forfeited if the shareholder moves abroad from Finland within three years after the end of the year of the share exchange. In this case, exit tax is calculated as the difference between the acquisition cost of the original shares and the value of the shares received in exchange.

According to the proposed regulations, the exit tax is triggered when the shareholder moves outside of the EEA or forwards the shares after moving to another EEA country within five years after the end of the year of the share exchange.

This means that moving within the EEA will no longer trigger the exit tax, provided the shares are held for at least five years.

The amendments are expected to be applicable for the first time in the 2012 tax assessment. However, due to the extension of the time limit, the amendments would be applicable to share exchange arrangements which have taken place after 1 January 2009..

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