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Finland: Amendment of List of Countries Subject to Controlled Foreign Company Legislation

(Feb. 4, 2014) The Ministry of Finance (Valtiovarainministeriö) of Finland issued a decree on December 31, 2013, updating its list of countries that impose a corporate tax burden deemed to be significantly different from (less than three-fifths of) the tax imposed in Finland. The countries on the list, sometimes called the black or gray list, are therefore of significance in the application of Finland’s controlled foreign company (CFC) legislation. The update adds Tajikistan and Uruguay to the list, which is otherwise the same as it has been since 2012. (Finland: Decree on Blacklist Countries Updated – Tajikistan and Uruguay Added to the List, T MAGAZINE (Jan. 9, 2014) [sourced from IBFD TAX NEWS SERVICE]; Väliyhteisölain harmaan listan asetus [CFC Act, Setting the Gray List] [hereinafter the Decree], No. 1284/2013, Ministry of Finance (Jan. 1, 2014) [click on link to text].)

By contrast, a statutory “white list” exempts CFCs resident in certain countries that have tax treaties with Finland from being subject to the CFC Act and its reach through taxation of the foreign corporate income, as long as the CFCs are covered under the relevant tax treaty. (DANIEL SANDLER, TAX TREATIES AND CONTROLLED FOREIGN COMPANY LEGISLATION: PUSHING THE BOUNDARIES 128 (Kluwer Law International, 1998).)

Under Finnish law, a CFC is a non-Finnish corporate body “under the direct or indirect ownership or control of a Finnish tax resident and de facto liable to less than 3/5 of the corresponding Finnish level of income taxation.” (Janne Juusela & Sanna Lindqvist, Finland: Finnish Supreme Administrative Court Case Concerning CFC Legislation, MONDAQ (last updated June 22, 2011).) If a corporation is resident in a country with which Finland has a double taxation treaty, however, it will not be deemed a CFC if certain conditions are met, e.g., if it is subject to an income tax in that country that is not substantially different from the corporate income tax that corporate entities must pay in Finland and if the given entity has not profited from that country’s specific tax relief legislation. (Id.)

Controlled foreign companies in Finland are governed by Law No. 1217/1994, as amended. (Laki ulkomaisten väliyhteisöjen osakkaiden verotuksesta, Law No. 1217 (Dec. 16, 1994/1217, as last amended by Law No. 187 of Mar. 15, 2013, in force on Mar. 18, 2013, but retroactively applicable from Jan. 1, 2013), FINLEX; Act on the Taxation of Shareholders in Controlled Foreign Companies (CFCs) of 16 December 1994 (1217/1994) [unofficial English translation of 1994 text].)

The recent Decree entered into force on January 1, 2014, and is applicable from the beginning of tax year 2014. (Finland: Decree on Blacklist Countries Updated – Tajikistan and Uruguay Added to the List, supra; Decree, supra.) The full list includes:

  • Barbados
  • Bosnia and Herzegovina
  • Georgia
  • Kazakhstan
  • Macedonia
  • Malaysia
  • Moldova
  • Montenegro
  • Serbia
  • Singapore
  • Switzerland
  • Tajikistan
  • United Arab Emirates
  • Uruguay
  • Uzbekistan