Taxation in Finland 2009

Tax i

ssue

s

7/2009

Taxation in Finland 2009

7/2009 Tax

issu

es

Ministr y of Finance publications

MINISTRY OF FINANCEPO Box 28 (Snellmaninkatu 1 A) FI-00023 GOVERNMENT FINLANDTel. +358 9 16001 Internet: www.financeministry.fiLayout: Publicationes team/Anitta Railonkoski

Edita Prima LtdHelsinki 2009

Fact sheet

Publisher and date Ministry of Finance, April 2009

Author(s) Mr. Anders Colliander

Title of publication Taxation in Finland 2009

Parts of publication/ other versions released

The publication is available on Internet at the website www.financeministry.fi

Keywords

Publications series and number

Ministry of Finance publications 7/2009

Sales distribution Edita Publishing Ltd. Customer service, tel. +358 20 450 05 Bookstore on the Internet: www.edita.fi/netmarketet

Printing place and year Edita Prima Ltd., Helsinki 2009

ISBN 978-951-804-932-9 (print) ISSN 1459-3394 (print)ISBN 978-951-804-933-6 (PDF)ISSN 1797-9714 (PDF)

No. of pages 212 Language Finnish

Price

Abstract

The text describes Finnish tax system and taxes levied in Finland. All areas of taxation (with exception of customs taxation) are covered. Taxes described include income tax, VAT, inheritance tax, excise duties but also many other taxes ranging from car tax to fishing management fee. The text also gives a description of prepayment of taxes, tax administration and appeals.

PrefaceThis twelfth edition of the information booklet "Taxation in Finland" takes into account all the recent changes in the Finnish tax legislation.

The booklet is based on tax legislation in force in Finland as at 1 January 2009 and all figures refer to 2009 unless otherwise stated. A brief description of the Government’s proposals to Parliament in the autumn 2008 has been included in Appendix 14 in order to give a more update picture of the current situation.

The aim is to give an outline of the principles of the Finnish system of taxa-tion and to describe briefly the individual taxes – how they work and how much they yield. The booklet has no binding force and does not affect a taxpayer’s rights and liabilities.

The booklet was compiled and edited by Mr Anders Colliander, Consulting Official at the Ministry of Finance (VM, BOX 28, 00023 Valtioneuvosto, Hel-sinki, Finland, telefax 358-9-16034747 or -8). Some passages of the language have been revised by Mr John Calton, Lecturer in English, and by Mr Jarl Hagelstam, former Senior Adviser, Legal Affairs, Ministry of Finance.

Any comments on the booklet will be gratefully received (Internet addresses for commenting the booklet: anders.colliander@vm.fi, or VMFintaxJL@vm.fi).

Helsinki, April 2009

Ministry of Finance

Contents1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1.1 Right of taxation and enactment of tax law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151.2 Main sources and level of taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

2 Taxation of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192.1 Taxes imposed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 2.1.1 State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

2.1.2 Communal tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .202.1.3 Church tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .202.1.4 Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .202.1.5 Tax withheld at source from interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .202.1.6 Health insurance contribution, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .202.1.7 Withholding tax on non-residents’ income . . . . . . . . . . . . . . . . . . . . .212.1.8 Withholding tax for foreign wage earners with special expertise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .212.1.9 Maximum combined rate of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

2.1.9.1 General maximum combined rate of tax. . . . . . . . . .222.1.9.2 Tax relief for persons deriving earned income both from abroad and from Finland . . . . . . . . . . . . . . .22

2.1.10 Recipients of tax revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .222.2 Taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

2.2.1 Unlimited and limited tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .232.2.2 Residents and non-residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .232.2.3 Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

2.2.3.1 Married persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .242.2.3.2 Minors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

2.2.4 Corporate bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .252.2.5 Partnerships and undistributed estates . . . . . . . . . . . . . . . . . . . . . . . . . . . .252.2.6 Permanent establishments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .262.2.7 Exempt persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

2.3 Income taxation of individuals: investment income . . . . . . . . . . . . . . . . . . . . .272.3.1 The concept of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .272.3.2 Definition of investment income, exemptions . . . . . . . . . . . . . . . . .282.3.3 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .292.3.4 Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

2.3.4.1 Dividend received from publicly listed companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .292.3.4.2 Dividend received from non-listed companies...... 30

2.3.4.3 Dividend received from non-resident companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .312.3.4.4 Other comparable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

2.3.5 Capital gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .322.3.6 Investment income share of agricultural income and business profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

2.3.6.1 Agricultural income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .352.3.6.2 Income from partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

2.3.7 Sole proprietors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .362.3.8 Other investment income.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

2.3.8.1 Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .372.3.8.2 Income from forestry and income from reindeer farming. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .372.3.8.3 Income from real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .382.3.8.4 Pension or other income based on voluntary pension insurances . . . . . . . . . . . . . . . . . . . . . . . . .382.3.8.5. Benefit from a life insurance policy . . . . . . . . . . . . . . . . .39

2.3.9 General deductions, losses and deficit in the category of investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

2.3.9.1 General deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .392.3.9.2 Voluntary pension insurance premiums . . . . . . . . .402.3.9.3 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .412.3.9.4 Investment income deficit and credit for the deficit against tax on earned income . . . . . . . . . .41

2.4 Income taxation of individuals: earned income . . . . . . . . . . . . . . . . . . . . . . . . . . .422.4.1 Definition of earned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .422.4.2 Exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .432.4.3 Deductions and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .462.4.4 Income spreading, training fund and sportsperson’s fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

2.5 Taxation of business profits, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .512.5.1 Business profits and income from professional activities .512.5.2 Chargeable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .512.5.3 Dividend received by corporate bodies . . . . . . . . . . . . . . . . . . . . . . . . . . .52

2.5.3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .522.5.3.2 Domestic situations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .522.5.3.3 Dividend is distributed by a company resident in an EU Member State . . . . . . . . . . . . . . . . . . . . . .532.5.3.4 Dividend is distributed by a company resident outside the EU area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

2.5.4 Exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .552.5.5 Participation exemption for capital gains . . . . . . . . . . . . . . . . . . . . . . . .562.5.6 Allowable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .572.5.7 Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60

2.5.8 Reserves and provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .652.5.9 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66

2.5.9.1 General rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .662.5.9.2 Restructurations and the treatment of losses of a permanent establishment of a Finnish corporate body . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .662.5.9.3 Restructurations and the deduction of losses of a permanent establishment which a foreign corporate body has in Finland . . . . . . . . . . . .67

2.5.10 Tax incentives (developing regions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .672.5.11 Contributions between affiliated companies (group contribution) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .682.5.12 Change in a company’s form, mergers and divisions . . . . . . .69

2.5.12.1 Change in a company’s form............................... 692.5.12.2 Mergers and divisions etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69

2.5.13 Controlled foreign companies (CFCs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .712.5.13.1 Shareholders covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .712.5.13.2 Controlled foreign company . . . . . . . . . . . . . . . . . . . . . . . . . . . .722.5.13.3 Chargeable income, credits and losses . . . . . . . . . . . .74

2.5.14 Taxation of real estate companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75

3 Prepayment of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .773.2 Withholding and prepayment register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .783.3 Preassessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .793.4 Use of prepaid tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

4 Inheritance and gift tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814.1 Rates of inheritance and gift tax 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .814.2 Residence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .824.3 Inheritance tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83

4.3.1 Scope of application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .834.3.2 Credit for foreign inheritance tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .834.3.3 Exempt persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .844.3.4 Valuation and deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84

4.4 Gift tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .854.5 Provisions concerning the transfer of a farm or a business . . . . . . . . . . .86

4.5.1 General rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .864.5.2 Calculation principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .864.5.3 Subsequent disposal of the property and interest relief . . . .87

5 International aspects of income taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 895.1 Residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .895.2 Non-residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89

5.2.1 Source rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89

5.2.2 Taxation of non-residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .915.2.2.1 Final withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .915.2.2.2 Taxation in assessment procedure . . . . . . . . . . . . . . . . . . .945.2.2.3 Withholding tax for foreign wage earners with special expertise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98

5.3 Arrangements for avoiding double taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .995.3.1 Act on Elimination of International Double Taxation . . . . .99

5.3.1.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .995.3.1.2 Credit method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .995.3.1.3 Exemption method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1005.3.1.4 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

5.3.2 Double taxation agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1015.4 Arm’s length principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

5.4.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035.4.2 Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

6 Value-added tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1056.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1056.2 Tax system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1056.3 Persons liable to tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1056.4 Foreign enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1066.5 Taxable transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1076.6 Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1076.7 Construction and services related to real property . . . . . . . . . . . . . . . . . . . . . 1096.8 Taxable amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1096.9 Tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1106.10 Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1116.11 Adjustment of deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1116.12 Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1116.13 Foreign trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

6.13.1 Place of transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1136.13.2 Intra-Community transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1156.13.3 Importation and exportation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1166.13.4 Warehousing arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

6.14 Tax procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1176.15 Invoicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

7 Excise duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1217.1 Arrangement for suspending duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1217.2 Taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1227.3 Time and rate of charge of duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1227.4 Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1237.5 Travellers’ allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1247.6 Declaration and payment of excise duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

7.7 Excise duty on manufactured tobacco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1257.8 Excise duty on alcohol and alcoholic beverages . . . . . . . . . . . . . . . . . . . . . . . . . 1267.9 Excise duty on soft drinks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1277.10 Excise duty on certain beverage packages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1277.11 Excise duties on energy products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

7.11.1 Excise duty on liquid fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1297.11.2 Excise duty on electricity and certain energy sources . . . . 132

7.11.2.1 Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1337.11.2.2 Coal, lignite and natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . 1357.11.2.3 Pine oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

7.11.3 Refund of excise duties on energy products to energy intensive enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

8 Other taxes and other tax revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1398.1 Road traffic taxes and other traffic taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

8.1.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1398.1.2 Car tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1408.1.3 Vehicle tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1428.1.4 Fuel fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1448.1.5 Road taxes applicable to motor vehicles registered abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1448.1.6 Track tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1458.1.7 Tonnage tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

8.2 Municipal tax on real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1458.3 Tax withheld at source from interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1468.4 Tax on insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1468.5 Tax on dogs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1478.6 Tax on honorary titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1478.7 Transfer tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

8.7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1478.7.2 Transfer of real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1488.7.3 Transfer of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

8.8 Tax on lottery prizes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1518.9 Tax on waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1528.10 Postal fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1538.11 Excess profits of Veikkaus Oy (the Finnish National Lottery Ltd) and Raha-automaattiyhdistys ry (the Slot Machine Association) ........1538.12 Fire insurance levy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1548.13 Pharmacy fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1548.14 Seamen’s welfare and rescue levy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1558.15 Oil waste duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1558.16 Oil damage duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1558.17 Game management fee and hunting licence fee . . . . . . . . . . . . . . . . . . . . . . . . . 1558.18 Fishing management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

8.19 Forest management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1568.20 Fairway Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

9 Tax administration, procedure and appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1599.1 Income tax administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

9.1.1 Organisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 9.1.2 Administrative procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

9.1.3 Changing the assessment after the end of assesment . . . . . 1629.2 Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

9.2.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1649.2.2 Administration, appellate court and advance rulings . . . . 164

9.3 Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1659.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

10 The status of the Province of Åland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

Appendix 1 Rates of state income on earned income 2009 . . . . . . . . . . . . . . . . . . . . 171

Appendix 2 Rates of inheritance and gift tax 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

Appendix 3 Deductions and allowances 2009 (earned income) . . . . . . . . . . . . . 174

Appendix 4 Tax credits against state income tax 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

Appendix 5 Withholding tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

Appendix 6 Taxation of companies and their non-resident shareholders when there is no double taxation agreement bet ween Finland and the State of residence of the share holders . . . . . . . 184

Appendix 7 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

Appendix 8 Abbreviations, EU Member States, EEA Member States . . . 188

Appendix 9 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Appendix 10 Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Appendix 11 Rates of excise duty on liquid fuels, electricity and certain energy sources 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

Appendix 12 Car tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

Appendix 13 Vehicle tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

Appendix 14 The government’s proposals to parliament in the autumn 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

15

1 Introduction

1.1 Right of taxation and enactment of tax lawAccording to the Finnish Constitution, the right of taxation lies with the State (central government), the municipalities (communes) and the local communi-ties of the Evangelical-Lutheran and Orthodox Churches.

Tax legislation is modelled along the lines of the tax legislation in the other Nordic (Scandinavian) countries.

1.2 Main sources and level of taxationThe level of taxation in Finland is clearly above the average for the OECD countries. According to OECD Revenue Statistics, in 2006 the ratio of total taxes to GDP at market prices was 43.5 in Finland compared with 35.9 in the OECD area as a whole. The tax ratio was the sixth highest among OECD coun-tries.

Taxes in Finland are levied on behalf of the Government, the municipalities (local government), the Social Insurance Institution and various social security funds under some forty different headings. Payments to the local communities of the Evangelical-Lutheran and Orthodox Churches are not classified as taxes in the OECD’s statistics.

According to OECD statistics the bulk of taxation – 69.2 per cent in 2006 – in Finland is derived from two categories of taxes: taxes on income, profits and capital gains, on the one hand, and taxes on goods and services, on the other. In 2006, the former category accounted for 38.1 per cent of total taxation and the latter for 31.1 per cent. The major part of the taxes on income – 79.7 per cent – was paid by the household sector. The share of income taxes paid by corporate bodies was 7.7 per cent of total taxes. The share of social security contributions in Finland amounted to 27.9 per cent of total taxation in 2006 and was thus slightly higher than the average for OECD countries, 25.0 per cent.

In 2007, the total tax revenue of the Government was 39,403 million euros, that of the municipalities 16,455 million euros and that of the social security funds 17,155 million euros. In terms of revenue, the most important taxes were the income tax (15,097 million euros) and value-added tax (15,000 million euros),

16both levied by the Government, and the communal (municipal income) tax, which accounts for most of the tax revenue of the municipalities. A further major source of tax revenue was the social security contributions paid by employers to the Social Insurance Institution and payments to the pension funds of pen-sion insurance companies as well as to various funds and foundations organ-ised by employers. In addition to the income and capital tax and value-added tax, which together accounted for 77.2 per cent of the Government’s total tax revenue, the Government received 4,670 million euros in the form of fourteen different types of excise duties.

The Finnish pension system is based almost exclusively on statutory and com-pulsory pension schemes, which are a mixture of a basic public pension regime (the national pension scheme) and an employment based pensions insurance (the occupational pension scheme). The occupational pension scheme admin-istered by pension insurance companies and pension funds and foundations organised by employers received the bulk of the pension contributions total-ling 14,859 million euros of which 11,092 million euros was paid by employers and 3,767 million euros by beneficiaries, i.e. insured persons. Employers also paid 1,331 million euros pension contributions to the national pension scheme administered by the Social Insurance Institution.

Other provisions for social security are made in the form of contributions to the national health insurance scheme and to the unemployment scheme. In 2006, employers’ contributions to the former were 1.092 million euros and to the latter 1.292 million euros. The contributions made by the insured to the unemployment scheme amounted to 357 million euros. The households’ con-tributions to the national health insurance totalled 1.506 million euros. In the OECD statistics these are classified as income taxes paid by individuals and are therefore excluded from the figures for social security contributions.

17Budgetary cash revenue in 2007 (Source: Statistics Finland)

millioneuro

% of totaltax revenue

State tax revenue 39 043 50.0

Taxes on incomeIncome taxInheritance and gift taxTax withheld at source from interest

15 09714 384

459 254

19.418.4

0.60.3

Taxes on the basis of turnoverValue-added tax Tax on insurance premiumsPharmacy fee

15 62115 000

509112

20.019.2

0.70.1

Excise dutieson tobaccoon alcoholic beverageson soft drinkson fuels

4 670622

1 01635

2 956

5.90.81.30.03.8

Other taxesTransfer taxCar taxTax on lottery prizesVehicle tax Tax on wasteTrack tax

2 191698

1 2171356125618

2.30.91.60.20.80.00.0

Other tax revenuesSeamen’s welfare and rescue levyExcess profits of Finnish National Lottery LtdExcess profits of Slot Machine AssociationGame management fee, hunting and fishing licencesAdministrative fines and penaltiesOil waste duty

8491

398 409

17 20

4

1.10.00.50.50.00.00.0

Tax revenue outside the State budgetOil damage dutyFire insurance levyEmergency stocks feeNuclear energy research fee

70 8 8

50 4

0.10.00.00.10.0

Municipal taxesCommunal (municipal income) taxTax on dogsMunicipal tax on real propertyOther municipal taxes

16 455 15 597

3850

5

21.1 19.90.01.10.0

Social security contributions tothe Social Insurance Institution 4 006 5.1

Employers’ national pension contributionsEmployers’ health insurance contributionsBeneficiaries’ health insurance contributions

1 3311 1421 533

1.71.51.9

Pension insurance contributionsEmployersEmployees

15 66911 902

3 767

20.115.3

4.8

Unemployment insurance contributionsEmployersEmployees

1 7211 346

375

2.21.70.5

CHURCH TAX TAXES AND FEES PAID TO EU TOTAL REVENUE

923200

78 017

1.20.3

100.0

18

19

2 Taxation of incomeThe Income Tax Act (1992) is a general act covering all types of income. How-ever, the net income from agri cul ture and business profits and in come from professional activities are de termined, for the purposes of income taxation, under the provisions of the Act on the Taxation of Farm Income (1967) and the Act on the Taxation of Business Profits and Income from Professional Activities (1968), respectively.

For a description of the special features of taxation in the Province of Åland, see Section 10.

2.1 Taxes imposed

2.1.1 State income taxes

State income taxes are levied on the earned income and investment income of individuals and the estates of de ceased persons.

The tax on earned income is levied ac cor d ing to a progressive tax scale de cided annually by Parliament. The rates of tax for the year 2009 are as fol-lows:

TABLE 1. Rates of state income tax on earned income 2009 (euro)

Taxable income Basic tax amount

Rate within brackets (%)

13 100–21 700 21 700–35 300 35 300–64 500 64 500–

8 610

3 058 9 482

7.0 18.0 22.0 30.5

The state income tax on investment income is levied at a flat rate of 28 per cent.

202.1.2 Communal tax

Communal (municipal income) tax is levied at flat rates on the earned income (of at least 10 euros) of individuals and the estates of de ceased persons. Each municipal coun cil sets the tax rate an nu ally in advance for the follow ing year on the basis of the municipal bud get. In 2009 the rate varies between 16,50 and 21 per cent, the average being 18.59 per cent.

2.1.3 Church tax

Individuals who are members of either the Evangelical-Lutheran Church or the Ortho dox Church pay church tax. Local communities of these churches levy the church tax on the earned in come of individuals and estates of de ceased persons. Church tax is imposed at flat rates, which are set annually in advance for the fol-lowing year in each com munity by the local eccle siastical council. In 2009 the rate varies between 1.0 and 2.0 per cent, the average being 1.32. The church tax is levied on the same taxable income as deter mined for communal tax purposes.

2.1.4 Corporate income tax

Corporate income tax is levied at a flat rate of 26 per cent.

2.1.5 Tax withheld at source from interest

The tax withheld at source from interest is a final tax levied at a rate of 28 per cent on inter est received by resident in di viduals and domestic estates of de ceased persons from domestic bank deposits and from bonds offered to the public for subscription.

2.1.6 Health insurance contribution, etc.

Employers’ social security contribution (not levied in 2009 in some north-ern, eastern and insular regions) consists of national pension contribution and health insurance contribution. For 2009, the private employers’ (includ-ing public utilities) national pension contribution is, according to the depre-ciation allowances, 0.801, 3.001 or 3.901 per cent of the total amount of sala-ries and wages. Other employers’ (municipalities, congregations and the State) national pension contribution is 1.851 per cent. All employers’ health insur-ance contribution is 2.0 per cent. Thus the social security contribution is for private employers (including public utilities) 2.801, 5.001 or 5.901 per cent and for other employers 3.851 per cent.

The health insurance contribution (collected for the Social Insurance Insti-tution) of insured persons consists of medical care contribution and daily allow-

21ance contribution. Employees and entrepreneurs pay both fees. For employees and farmers the medical care contribution is 1.28 per cent and the daily allow-ance contribution 0.7 per cent, and so their health insurance contribution is 1.98 per cent. For entrepreneurs the medical care contribution is 1.28 per cent and the daily allowance contribution 0.79 per cent and their health insurance contribution is 2.07 %. Retired persons and other recipients of benefits (e.g. per-sons receiving daily unemployment or sickness allowance) pay only the medical care contribution at a rate of 1.45 per cent.

The employees’ unemployment insurance contribution is 0.20 per cent and the co-owners’ 0.07 per cent. The employers’ and public utilities’ unemployment insur-ance contribution is 0.65 per cent for the first 1 788 000 euros and then 2.7 per cent (1.8 per cent for public utilities). It is 0.65 per cent in the case of a co-owner.

The average employment pension insurance contribution is 22.0 per cent of the salaries and wages. A temporary rebate of 1 percentage unit is given. For employers the contribution is on average 16.8 per cent, for employees 4.3 per cent but 5.4 per cent for employees who have turned 53. The entrepreneurs’ (farm-ers and sole proprietors) pension insurance contribution is 20.8 per cent and 21.9 per cent for persons who have turned 53. In the case of sailors the pension insurance contribution is 11 per cent for both employers and employees, and without age differentiation.

The accident insurance contribution varies between 0.3 and 8 per cent. The group life insurance contribution is 0.074 per cent.

Social security contributions payable by employers are calculated on the basis of salaries and wages. In the case of employers’ national pension contribu-tion and health insurance contribution, salary and wages (excluding certain tax exempt expenses paid by the employer in connection with a period of employ-ment abroad, see 2.4.2) which are exempt on the basis of the "six-month rule" (see 2.4.2), are taken into account.

2.1.7 Withholding tax on non-residents’ income

Most items of Finnish source income derived by non-residents are sub ject to a final with holding tax at flat rates of 13, 15, 19, 19.5, 28 or 35 per cent. Divi-dend, interest, royalty and salary and wages are the most common types of income that is subject to the final withholding tax. For a detailed presenta-tion, see 5.2.2.1.

2.1.8 Withholding tax for foreign wage earners with special expertise

Under the Act on Withholding Tax for Foreign Wage Earners with Special Expertise (1995) a with hold ing tax of 35 per cent is levied in lieu of com munal tax and State income tax on earned income. For a detailed presentation, see 5.2.2.3.

222.1.9 Maximum combined rate of tax

2.1.9.1 General maximum combined rate of tax

After the abolition of the net wealth tax in 2005 there is no longer a general maximum combined rate of tax.

2.1.9.2 Tax relief for persons deriving earned income both from abroad and from Finland

A person deriving earned income both from abroad and from Finland is enti-tled to a tax relief if the following conditions are fulfilled:

the person is resident in Finland, derives from a foreign country earned •income that is taxable only in that country under a double taxation agree-ment between Finland and the country, and

the person also derives other earned income that is subject to tax in •Finland, and

the total amount of the Finnish income tax on this total in come and the •foreign income tax on the foreign income is higher than it were had the total earned income been income that is taxable only or may be taxed in Finland.

The Finnish income tax is then lowered to the following maximum:

the amount that combined with the foreign income tax paid abroad on •the above mentioned income corresponds to the amount of income tax that the taxpayer should have paid if the earned income had been income that is taxable only or may be taxed in Finland.

2.1.10 Recipients of tax revenue

As their names indicate, the state tax on earned income and the state tax on in vestment income are paid to the State. The communal tax and the church tax are paid to the munici palities and the local communities of the Evangeli-cal-Lutheran or the Orthodox Church, re spect ively.

Under the Tax Accounting Act the re v enue from corporate income tax is distri buted between the State, the munici palities and the local communities of the Evangelical-Lutheran or the Ortho dox Church. For the year 2009 they receive 76.03 per cent, 22.03 per cent and 1.94 per cent of the tax, respectively. The latter two shares are then apportioned to the muni cipalities and the com-munities of the two churches accord ing to fixed shares, mainly based on the latest revenue sta tis tics.

The final tax withheld at source from in terest and the final withholding tax on non-residents’ income as well as the with holding tax for foreign wage earn-ers with special expertise are paid to the State.

232.2 Taxpayers

2.2.1 Unlimited and limited tax liability

Individuals resident in Finland as well as resident corporate bodies and the es tates of deceased persons are liable to tax on their entire income, whether de rived from Finland or abroad (unlimited tax liability).

Non-resident individuals and corporate bodies are liable to tax on their income de rived from Finland (limited tax liab ility). Interest derived from Finn-ish bonds, deben tures and other mass instru ments of debt, or from loans from abroad which are not considered as capital in vest ment assimilated to the debtor’s own capital, as well as interest from deposits in banks or other financial insti-tutions and from foreign trade credit accounts are exempt from income tax on the basis of internal legislation.

If a person who is not resident in Finland, or a foreign corporate body or a partnership has a permanent establish ment in Finland for conducting business, that person, corporate body or partner ship is liable to income tax for all in come attributable to that permanent es tablishment, whether derived from Finland or from abroad. An exception to this rule is (under certain conditions) income received by a non-resident sleeping partner in a Finnish limited partnership for venture capital investing (see 5.2.1).

2.2.2 Residents and non-residents

An individual is deemed to be resident in Finland if he has his main abode in Finland or if he stays in Finland for a con tinuous period of more than six months. This rule implies that a person can be regarded as resident in Finland for part of the year and non-resident for the rest of the year. The stay in Finland may be regarded as continuous in spite of a temporary absence from the country.

A resident national who has left Finland (and surrendered his place of main abode here, if any) is, however, con sidered to be resident in Finland even if he is not physically present in Finland for a continuous period of more than six months within any period of time until three years have elapsed from the end of the year in which he left the country, unless he can produce evidence that he has not main-tained substantial ties with Finland during the tax year in question (the "three-year rule"). Unless there is evidence to the contrary, a Finnish na tio nal is not deemed to be resident in Fin land after the end of the three-year period.

In addition, a Finnish national who takes up position at a Finnish diplomatic mis sion, consular post or special mission and who is not resident in the foreign country in question at the time when he commences the period of service, is dee med to be resident in Finland.

Non-residents employed on board Finnish ships or aircraft are liable to tax only on wage income derived from work done on board and work done tempo-

24rarily elsewhere for the ship or aircraft by the employer’s order, pension income which is directly or indirectly based on such wage income, as well as income derived from Finland. Foreign ships and aircraft leased with only a minor crew or without any crew (bare boat leasing) by a Finnish employer are considered to be Finnish for tax purposes.

The Income Tax Act does not contain provisions defining the meaning of "re sidence" with regard to corporate bodies but according to present practice a cor porate body is regarded as resident in Finland if it is registe red (incorporated) here or otherwise established under Finnish law. A general or limited part ner-ship registered in Finland or otherwise established under Finnish commercial law is, following the same principle as applied in the case of corporate bodies, regarded as resident. The Income Tax Act contains express rules only on the residence of undistributed estates of deceased persons which are regarded as residents in Finland if the deceased was resident here at the time of death.

A person who is resident in Finland for only a part of the year is taxed as a resident on income attributable to that part of the year and as a non-resident on income attributable to the rest of the year.

2.2.3 Individuals

2.2.3.1 Married persons

Married persons are taxed separately both on earned income and investment income.

If spouses run a business or a farm to gether, profits from the business or in come from the farm is apportioned to ear ned income and investment income (see 2.3.6). In such cases (excluding fo restry income), both types of income are apportioned between the spouses. The apportionment of the earned income is determined on the basis of the labour contributed and of investment income on the basis of their shares in the net assets belonging to the business or farm. Both types of income are apportioned equally if no other evidence is presented.

If spouses jointly practice forestry, the in come from the forestry is taxed fol-low ing the prin ciples applied to partner ships for cultivating and holding real pro perty (see 2.2.5).

Persons who have married before the end of the tax year are regarded as spouses for the tax year in question.

The provisions of the Income Tax Act relating to spouses do not apply where the spouses have lived the whole tax year apart or have moved to separate dwell-ings during the tax year in order to live permanently apart. The same applies in the case of a married couple where either of the spouses is a non-re sident.

Individuals living together in free union are, for the purposes of income taxation, considered as spouses if they have been married to each other previ-ously or if they have had or are having a child together.

25As a general rule, deductions granted to each spouse are the same as those

granted to single persons, although in areas such as interest and pension in surance deductions the marital status of the taxpayer may have a bearing on the taxation.

2.2.3.2 Minors

Minors, i.e. children under the age of seventeen, are taxed on their own in come, separately from their parents.

2.2.4 Corporate bodies

The following entities are considered to be corporate bodies and as such sep-arate taxable entities: the State and its insti tutions, the municipalities, joint muni cipal authorities, religious communities, limited companies, co-operative so cieties, savings banks, investment funds (unit trusts, mutual funds), uni-versity funds, asso ciations, mutual insurance com pa nies, foundations, foreign estates of de ceased persons, institutions or any other si milar legal persons as well as property set aside for a particular purpose.

The rules of Income Tax Act concerning limited companies are also applied to European Companies (SE) and the rules concerning co-operative societies are also applied to European Cooperative Societies (SCE).

2.2.5 Partnerships and undistributed estates

The following entities are regarded as partnerships for tax purposes: 1) gen-eral and limited partnerships established under commercial law, and 2) other similar entities that are not based on commercial law (i.e. partnerships other than general or limited partnerships) but are formed by two or more persons (including limited companies, partnerships or any other entities) for conduct-ing a business jointly on behalf of these persons ("business partnerships") or cultivating or holding real property ("real property partnerships"). However, joint ventures formed by two or more taxpayers engaged in business activity for performing a specified construction work or other similar work are not treated as partnerships.

Partnerships are not regarded as separate taxable entities. The net income of a part nership is determined under the rules applicable to corporate bodies but is attributed to the partners according to each partner’s share in the part-nership’s total income and must be taxed either as earned income or invest-ment income.

Resident partners of a non-resident part nership are taxed as if they were resident partners in a domestic partnership. Any losses of the partnership are deducted at the partner level.

26European Economic Interest Groupings are taxed as partnerships. A mem-

ber’s share of the loss of the grouping is deducted from the annual income of the member in question.

Undistributed resident estates of de ceased persons are treated as separate taxable entities. However, if the estate is engaged in business, it is entitled to such treatment for a period of no more than three tax years following the year of death. After that period it is treated as a partnership.

2.2.6 Permanent establishments

For the scope of tax liability see 2.2.1.The term "permanent establishment" is defined in the Income Tax Act as a

distinct place for conducting business of a permanent nature, or where special arrangements for conducting such business have been made. Examples given in the Act are: a place of management, a branch, an office; an industrial plant, a factory, a workshop or a shop or any other permanent place for purchasing or selling. Other examples are: a mine or other finding, a quarry, a peat bog, a gravel pit or any other similar place; in the case of sales of parcelled land or land which is going to be parcelled and whose sales are part of a business activity, the land itself; in the case of building contracts, a site of manifest building activity and, where a line service is in operation, the place for maintenance or repair of the enterprise or any other permanent and special place for the line service.

If the assets of a permanent establish ment in Finland cease to be assets of the permanent establishment, for example, they are transferred out of Finland, the market value of the assets must be included in the taxable proceeds of the permanent establishment.

Where a corporate body has been foun ded in connection with a transfer of assets for the purpose of continuing the business activity of another a corporate body resident in another EU Member State and conducting business through a permanent establishment in Finland, that body is entitled to deduct the loss of the permanent establishment ac cord ing to the general rules (see 2.5.9).

For further details concerning per ma nent establishments, see 5.2.2.1.

2.2.7 Exempt persons

The following entities are exempted from income tax:Bank of Finland, University of Helsinki, Finnish Broadcasting Company Ltd,

Finnvera Oyj (Official Export Credit Agency), Fund for Industrial Co-operation Ltd (Finnfund), Nordic In vestment Bank (NIB), Nordic Pro ject Export Fund (NOPEF), Nordic De velopment Fund, Nordic Environ ment Finance Corpora-tion (NEFCO), Social Insurance Institution, university funds, em ployee invest-ment funds, investment funds (unit trusts, mutual funds) and unemployment funds, training funds and sportsperson’s funds, Government Guarantee Fund

27(a fund for securing stability and depositors’ claims in the deposit banks), Finn-ish Innovation Fund (Sitra), and Ekokem Ltd (a company for treating hazardous waste, but see Appendix 14, 2).

The State, the municipalities and re ligious communities are each liable to tax only in respect of business profits and income from real property used for other than public or non-profit-making purposes. As these entities do not pay tax to themselves, the tax rate is lower accordingly, i.e. for the State and municipalities 6.1828 per cent and for religious communities 5.7278 per cent. A municipality is not liable to tax in respect of profits derived from business conducted on its own area and real property situated on that area.

Non-profit-making organisations in the field of education, science, arts, pub-lic defence, poli tics etc., are liable to pay corporate income tax – at the ordinary rate of 26 per cent – only in respect of their business profits. In addition, they are liable to corporate income tax on their income from real property used for other than public or non-pro fit purposes at a reduced rate of 6.1828 per cent (roughly cor re sponding to the total amount of shares of the tax distributed to the munici palities and the local ecclesiastical com munities, see 2.1.10). Non-profit-mak ing organisations are granted exemp tions from income tax on busi-ness profits and income from real property upon application (tax concession for non-profit-making organisations).

Persons serving in Finland at foreign dip lomatic missions, other similar rep resen tations or consular posts headed by career consular officers and per-sons serv ing in Finland as employees of the United Nations, its specialised agencies or the International Atomic Energy Association, as well as members of their families and their private servants who are not Finnish nationals, are, to a large extent, exempt from state income tax and communal tax. They are, however, liable to income tax with regard to any income derived from real prop-erty si tuated in Finland or income from letting a flat held by virtue of shares in a Finnish residential housing company or other real estate company, as well as profits from a business carried on or in come from professional activities per-formed in Finland, or income, including pen sions, from employment in Finland not connected with their duties with the mission or post.

2.3 Income taxation of individuals: investment income

2.3.1 The concept of income

Income subject to tax is defined as the taxpayer’s annual receipts in money or money’s worth. In addition to this definition, the Income Tax Act provides several examples of receipts regarded as chargeable income and of receipts not included in chargeable income. In apply ing tax legislati on, the principle is that

28receipts are subject to tax unless there is explicit provision to the contrary. Thus the concept of chargeable income is very extensive.

The income is taxable for the tax year in which it has been drawn by the taxpayer, in which it has been paid to the taxpayer’s account, and in which the taxpayer has received the income or the income is at his or her disposal. Capi-tal gains are taxable for the year in which the sale or exchange or any other dis-posal took place.

The tax is levied on net income; the expenses incurred in acquiring and maintaining income are deductible for the year in which they are paid. In cer-tain cases the allocation principles of business taxation are also followed in the taxation of individuals.

2.3.2 Definition of investment income, exemptions

Investment income is defined as the proceeds from capital, gains from the dis-posal of assets (capital gains) and other income yielded by assets. The Income Tax Act lists the following examples of investment income:

interest and rental income; interest income includes certain payments •made by the original debtor of a debt to a guarantor or a surety of the debt if the guarantor or surety has de duc ted the corresponding amount in his taxation;

dividend (see 2.3.4);•

income from forestry;•

distributions by investment funds (unit trusts, mutual funds);•

income from patents or copyrights if the patents or rights have been •inherited or received under a will or acquired for a financial con sider-ation;

income from the sale of materials taken from the ground. •

a money loan (shareholder loan) outstanding at the end of a tax year, if •the loan has been given by a com pany to an individual during a tax year, and if the individual, members of his family or they together directly or indirectly control at least 10 per cent of the shares or the voting power in the company.

In addition, the category of investment income includes the investment income share of certain types of income, such as profits from business (income from a partnership or the income of a sole proprietor) and agricultural income. The share is calculated annually on the basis of Act on Valuation of Property for Taxation and is at most either 10 or 20 per cent of the net wealth.

29The following items of investment income are exempt: benefit that a taxpayer

receives from the enjoyment of his own apartment (as a shareholder or member) in a residential housing company (see 2.5.14) at a cost that is lower that the mar-ket rent (such benefit is not income to residential housing companies either), fee received by the owner from the cancellation of the right of residence (right of residence apartments), interest subsidy in the form of lower interest rate granted by the State, municipality or any other statutory body, benefit received for the sustainable development of forests and the annual amount of exchange gains up to 500 euros for individuals or estates of deceased persons.

2.3.3 Interest income

Interest income is investment income. However, it is not taxed as investment income, if it is subject to the tax withheld at source from interest which is a final tax (levied at the rate of 28 per cent on interest on bank deposits and on various bonds, see 2.1.5 and 8.3).

2.3.4 Dividend

2.3.4.1 Dividend received from publicly listed companies

In the case of individual shareholders 70 per cent of dividend from publicly listed companies is taxed as investment income at a rate of 28 per cent and 30 per cent is tax exempt.

Dividend from a publicly listed company is defined as dividend from a com-pany the shares in which are, at the time of making decision on the distribu-tion of dividend, traded

publicly in a way referred to in the Finnish Securities Markets Act or •traded on some other regulated market referred to in Directive 2004/39/EC on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC;

on some other regulated market that is outside the EEA (European •Economic Area; Member States are listed in Appendix 8) and supervised by public authorities; or

in multilateral trading referred to in Directive 2004/39/EC on the EEA on •the condition that the share has been admitted to trading on application by the company or with its consent.

302.3.4.2 Dividend received from non-listed companies

An annual return of 9 per cent is calculated on the value of the shares in non-listed companies. The dividend is tax exempt up to an amount of 90,000 € of such return. The amount of such dividend that exceeds 90,000 € is taxed by applying 70/30 per cent rule and so 70 per cent of the dividend is taxed as investment income at a rate of 28 per cent and 30 per cent is tax exempt.

Examples:

1. Dividend received 80,000 euros Calculated return 100,000 euros,

80,000 euros is tax exempt.

2. Dividend received 100,000 euros Calculated return 100,000 euros,

a) 90,000 euros is exempt

b) 70 per cent of 10,000 euros or 7,000 euros is taxed as investment income (rate of 28 per cent)

c) 30 per cent or 3,000 euros is tax exempt.

The amount that exceeds the 9 per cent return is also taxed by applying 70/30 per cent rule, but now 70 per cent is taxed as earned income (progressive income tax scale).

3. Dividend received 10,000 euros Calculated return 6,000 euros

a) 6,000 euros is exempt

b) 70 per cent of 4,000 euros or 2,800 euros is taxed as earned income (progressive income tax scale)

c) 30 per cent of 4,000 euros or 1,200 euros is tax exempt.

4. Dividend received 140,000 euros Calculated return 100,000 euros,

a) 90,000 euros is tax exempt,

b) 70 per cent of (100,000–90,000) 10,000 euros = 7,000 euros is taxed as investment income (rate of 28 per cent)

c) 30 per cent of 10,000 euros or 3,000 euros is tax exempt,

d) 70 per cent of 40,000 euros or 28,000 euros is taxed as earned income (progressive income tax scale)

e) 30 per cent of 40,000 euros or 12,000 euros is tax exempt.

The value of the shares is defined as the mathematical value based on Act on the Valuation of Assets for Taxation.

31If a company’s shareholder who is not regarded as an em ployee of the com-

pany (a person in a leading po sition) has used a flat belonging to the company’s assets as his own or his family’s dwelling, the value of the flat is deducted from the value of share holder’s shares when the annual return is calculated.

If a company conducting business gives a money loan which is a part of the company’s assets, to a share holder or to a member of his family, and the share-holder alone or together with members of his family control at least 10 per cent of the shares or the voting power in the company, the loan is deducted from the value of his or his family members’ shares when the annual return is calculated.

In the case of disguised dividend 70 per cent of the dividend is taxed as earned income (progressive income tax scale) and 30 per cent is tax exempt.

2.3.4.3 Dividend received from non-resident companies

Dividend received from a non-resident company is taxed in the same way as domestic dividend (see 2.3.4.1 and 2.3.4.2) if:

the distributing company is a company mentioned in Article 2 of the EU 1. Parent–Subsidiary Directive (90/435/EEC, for details, see 2.5.3.3), or

between Finland and the country of residence of the distributing company 2. there is in that tax year in force a tax treaty, which is applied to the dividend distributed by that company.

The only difference is that the annual return is calculated on the basis of the current value, which the shares had in the possession of the owner at the end of the year preceding the year in which the dividend is distributed. The current value means the probable alienation price of the property.

In all other cases dividend is fully taxable. Thus it is taxable income if it is distributed by a company resident in a non-EU Member State with which Fin-land does not have a tax treaty in force. It is also taxable if a tax treaty cannot be applied, for instance on the basis of a provision limiting the benefits of the treaty. Moreover, it is taxable if the distributing company is not a company men-tioned in Article 2 of the EU Parent–Subsidiary Directive but in that case also a tax treaty may be applicable and thus the dividend may be taxed in the same way as domestic dividend.

2.3.4.4 Other comparable income

The rules concerning dividend are also applied to interest paid on the par-ticipation capital of a co-operative society, profit paid on the basic reserves of a savings bank, interest paid on the investment in the additional reserves of a savings bank, interest paid on the guarantee capital of a mutual insurance company or insurance association. For individuals and estates of deceased

32persons 70 per cent of such income is taxable (as investment income) if the amount of such income exceeds 1,500 euros in a tax year. If such income received by the taxpayer is business income or agricultural income the tax exempt part is attributed to personal income, agricultural income and busi-ness income in that order.

Substitute dividend is treated in the same way as ordinary dividend.

2.3.5 Capital gains

Capital gains are regarded as investment income in all cases.The taxable capital gain is calculated by deducting the acquisition costs and

sales costs from the sales price. A minimum deduction of 20 per cent of the sales price is applied. If the property has been held for at least ten years, the mini-mum deduction is 40 per cent.

Capital gains are tax-exempt in the following case:

a taxpayer disposes of real property used in agriculture or forestry, a share •in a general or limited partnership or shares in a company giving the right to at least 10 per cent ownership in the company; this rule is also applied to corresponding entitlement to CAP (Common Agricultural Policy of EU) farm subsidy if it is alienated in the context of alienation of farm land to the same recipient; the real property or shares have been owned for more than ten years by the •taxpayer or the taxpayer and the person from whom the taxpayer re ceived the property without a finan cial consideration; the recipients are certain close re latives.•

If the relative concerned disposes of the real property or shares to another person within five years of the date of acquisition, the exemption is lost.

The exchange of a convertible pro missory note for shares and the ex change of shares are not deemed to be alienations of assets.

The gain arising from a standardised forward contract is treated as capital gain (and the corresponding loss is deductible).

A capital gain derived from the sale of shares in a company carrying the right to the enjoy ment of a flat or the sale of a house which for at least two years prior to the sale has served uninterrupted as the owner’s or his family’s per-manent home, is entirely exempt from tax if the flat or house is used mainly (at least 50 per cent) for residential purposes. If less than 50 per cent was used in such a way, the exemption is correspondingly partial (and thus also applied to co-owners).

The annual gain from the disposal of household effects is exempted if it does not exceed 5,000 euros.

33Capital gain derived by an individual or an estate of a deceased person is

not taxable income, if the total transfer price of property disposed of in a tax year are at most 1,000 euros. Alienation of property, which is tax exempt on the basis of other provisions in the legislation or which is household effects or similar property intended for personal use are not taken into account in the calculation of the limit.

If real property is alienated by an individual either to the State, a municipal-ity or a joint municipal authority, or if the recipient of the real property would have had the right to expropriate the property, the acqui sition cost is deemed to be 80 per cent of the proceeds.

The acquisition cost of a share that the taxpayer has acquired earlier is not taken into account when the corresponding cost of a subscription right, con-vertible bond, option loan or an option is determined.

When capital gain on the basis of alienation of a forest is calculated the for-est deduction (see 2.3.8.2) is deducted from the acquisition cost.

As far as the computerised trading system (trading in book-entry system) is concerned, shares in certain property, shares in an investment (or mutual) fund and shares in undertaking for collective investments in transferable securities (UCITS) are deemed to be alienated in the order in which they have been received unless otherwise shown. In determining the order in which a property has been alienated the property is deemed to have been received on the same date, from which its period of ownership in taxation of capital gains is calculated.

Special rules are applied in situations where the property has been received partly or wholly as a gift or where such property is forwarded. If the prop erty has been received without financial con sideration, the acquisition cost is the value which has been used in deter mining inheritance and gift tax. However, if the beneficiary disposes of such property before one year has passed after the donation, the donor’s acquisition cost is deemed to be also the beneficiary’s acquisition cost. If the price used in the alienation of a property is 75 per cent or less of the market value, the alienation is partly an assignment for considera-tion, partly a gift. The acquisition cost of the part that is deemed to be assign-ment for consideration is the share of the whole acquisition cost which corre-sponds to that assignment.

Capital losses may only be set off against capital gains arising in the same year and the following three years. Unlike capital gains, they are not taken into account when calculating the balance (i.e. deficit) in the category of invest-ment income (for further details, see 2.3.9.4). Losses arising from the disposal of the permanent home are not deductible if the capital gain from such a dis-posal would have been tax exempt (see above). Losses arising from the disposal of household effects are not deductible. If the total transfer price of a property disposed of in a tax year is at most 1,000 euros and if the total acquisition cost of the property is at most 1,000 euros, losses arising from those disposals are not deductible.

34In the case of individuals and undistributed estates annual foreign exchange

gains not relating to the acquisition of taxable income are tax exempt up to 500 euros.

Capital gain is temporarily exempted from tax where an individual or an estate of a deceased person alienates real property to a municipality on 1st of February 2008 or thereafter but before 1st of April 2009.

In the case of income from first felling done between 1st April and 31st August in 2008, capital gains of individuals, estates of deceased persons and real prop-erty partnerships are (temporarily) exempt if the forest and the contract for first felling fulfil certain criteria and the price is paid on 31st December 2009 at the latest. The acquisition costs are not deductible. A temporary tax exemption of 50 per cent is granted to the same groups of taxpayers for the sale of timber if the contract has been concluded between 1st April and 31st December 2009 and the price is received between 1st April and 31st December 2010. The exemp-tion is 75 per cent if the price in such a case is received between 1st January 2011 and 31st December 2011. The exemption is also 75 per cent if the contract has been concluded between 1st January 2010 and 31st December 2010 and the price is received between 1st January 2010 and 31st December 2011. The deduc-tion for expenses (defined as expenses for felling and harvesting and expenses for trips between home and forest to be sold if the expenses have incurred in acquiring the capital gains) is limited to 50 or 75 per cent. Maximum limits of 200 000 euros and 192 500 euros are applied (linked with the EU de minimis rules, Regulation 1998/2006/EU). The amount of forest deduction is added to the capital gain but its amount cannot exceed 60 per cent of the acquisition cost of the alienated forest. These exemptions are in force until 31st December 2009, 2011 or 2013.

2.3.6 Investment income share of agricultural income and business profits

Agricultural income and business profits (partnerships and sole proprietors) are calculated separately and the losses of previous years are deducted corre-spondingly separately. The results are then apportioned to invest ment income share and earned income share. The maximum investment income share is 20 per cent of the net assets of the business or agriculture at the end of the year preceding the tax year. However, taxpayer may claim that the investment share is at most 10 per cent of the net assets.

In the calculation of the net assets, the values determined by the Act on the Valuation of Assets of Taxation are mainly used.

When calculating the investment in come share of agricultural income or business profits, 30 per cent of the wages and salaries subject to withholding of tax and paid (by farmers, part ner ships or sole proprietors) in the 12 months preceding the end of the tax year is added to the net assets.

352.3.6.1 Agricultural income

The taxation of agricultural income is governed by the Act on the Taxation of Farm Income. Farm income is defined as the total net income from agricul-ture including auxiliary activities which do not constitute a separate business. Farm income is mainly determined according to similar principles as those applied in determining bu siness profits.

In the case of dividend 70 per cent of all dividend (the character of the dis-tributing has no relevance) received on the basis of property being part of agri-cultural assets is taxable.

Capital gains from securities relating to a farmer’s agricultural assets form the minimum of investment income share.

Agricultural assets do not include cash and claims. Certain other assets such as gravel and sand pits are also excluded if they are used for non-agricul-tural purposes.

2.3.6.2 Income from partnerships

As mentioned in 2.2.5 the net income of a part nership is attributed to the partners according to each partner’s share in the partnership’s total income. It is then taxed either as earned income or investment income. The main rule is that at most 20 per cent of the partner’s share in the net assets of the partner-ship is investment income. This rule is applied to business income and agri-cultural income. If a business partnership has income other than business income, it is calculated separately. Partner’s share of the other income is taxed wholly as investment income.

Capital gains from real property and securities belonging to the fixed assets of a business partnership form the minimum of the investment income share.

In business partnerships losses are de ducted at the partnership level. In business partnerships dividend is treated as follows:

When the business income or agricultural income of a business partnership 1. is calculated, dividend received by the partnership is considered to be totally included in that income.

When that income is attributed to a partner, the tax exempt (on the basis 2. of Act on the Taxation of Business Profits and Income from Professional Activities or the Act on the Taxation of Farm Income) part of the dividend included in his share is deducted from his share. If the share is not big enough, the deduction is made from the share within the same income source and in the same partnership in the ten subsequent years when income arises. The deduction is made before calculating the amounts of investment share.

36When the other income of a business partnership is determined, dividend 3. received by the partnership is not taken into account. Dividend is attributed to a partner according to his share in the partnership’s income and dividend is deemed to be his income according to those rules of Income Tax Act which are applied to the partners.

Remuneration paid at the normal going rate to a partner for services ren-dered to the partner ship is deductible from the partnership’s income (and taxed as the income of the partner).

When property or rights are used by a partner for investment in a partner-ship, this investment must be valued at the market price in the taxation of both the partner and the partnership.

When real property, buildings or se curities are transferred from a partner-ship to its partner (a "transfer to private use") the market price must be applied (regulated reorganisations are excluded from this provision). If the transfer in volves other assets, services or benefits, whichever is the lower, the book value or the market value, must be applied. These principles are also applied when-ever a partnership is dissolved.

If the assets of a business partnership include a flat used as a dwelling of a partner or his family, the value of the flat is deducted from the partner’s share in the net assets. A loan taken out by a general partner in order to acquire a share of a general or limited partnership is deduc ted from the general partner’s share in the business assets of the partnership. The interest on such a loan is deducted from the general partner’s business profits share from a business partnership before calculating the amount of investment share. Claims from partners are not deemed to be business assets.

In real property partnerships losses are attributed to the partners. A part-ner’s interest expenses relating to agricultural activity and his losses from the part ner ship from previous years are deducted before calculating the invest-ment in come. If a real property partnership has income other than income from agriculture, the partner’s share of the other income is taxed wholly as investment income.

2.3.7 Sole proprietors

Capital gains from the disposal of real property and securities belonging to the fixed assets of a sole proprietor form the minimum of investment income share. The use of a replacement reserve lowers the minimum.

372.3.8 Other investment income

2.3.8.1 Rental income

Rental income is taxed as investment income.

2.3.8.2 Income from forestry and income from reindeer farming

The taxpayer’s taxable investment income consists of

income from the first onerous alienation of right to fell timber (sale on the •stump, stumpage sale)

the investment income share from the sale of wooden products made of stem •wood (sold as a sale of delivery) such as logs, columns, pulpwood, firewood and woodchips; in order to calculate the in vest ment income share, the value of logging and hauling work carried out by the farmer and his family is deducted from the sales price.

income from products other than stem wood, e.g. sale of felling waste, stubs, •coniferous litter and Christmas trees etc.;

indemnities and other similar payments paid for a forest and also timber •transferred to private household and to another source of income;

subsidies and benefits for forestry;•

income in the case where a person sells real property and then reserves the •right to fell trees.

The value of timber for constructing and repairing buildings other than residential buildings or similar buildings for personal use and the value of tim-ber for heating purposes or for other personal use are not included in the tax-able income.

An individual, an estate of a deceased person, or a real property partner-ship whose mem bers are individuals or es tates of a deceased person are entitled to a forest deduction before expenses in curred in acquiring and maintaining in come from forestry are deducted. The deduction is at most 60 per cent of the annual investment income from the forestry. The total amount of this deduc-tion and similar deductions of earlier years (excluding amounts that have been added to the taxable capital gains) cannot exceed 60 per cent of the total acqui-sition costs of forests that the taxpayer owns at the end of the tax year and that would entitle to the forest deduction.

The above-mentioned persons are also entitled to form a cost reserve on the basis of invest ment income from for estry if the forest is part of a farm and is not used as part of a busi ness. The reserve is at most 15 per cent of such in come

38after the forest deduction has been made. The reserve is taxed as income for one or more of the subse quent tax years (at the latest for the sixth tax year) depend-ing on the geographical area in which the farm is located.

The deductible expenses in this form of taxation include all the necessary costs of practising forestry.

The income from reindeer farming is investment income with the exception of work done for the reindeer farming. In order to calculate the total reindeer farming income of a farmer, the income generated by one reindeer (more than one year old) in the previous year is estimated by using rates of return confirmed for taxation purposes and taking into account the typical costs in the farming locality and then multiplying the income generated by one reindeer with the number of reindeers owned by that farmer.

2.3.8.3 Income from real property

The Income Tax Act does not operate with the concept of income from real property (except in the case of non-profit-making organisations, see 2.2.7). What may elsewhere be understood as residual income from real property, may, in Finland, be treated as business profits or rental income or income from agri culture or forestry. See also 2.5.14 concerning Finnish real estate compa-nies and their taxation.

2.3.8.4 Pension or other income based on voluntary pension insurances

Pensions and other payments paid on the basis of a voluntary pension insur-ance (supplementary personal pension scheme) taken out by a taxpayer or his spouse are taxable investment income. Also family pensions are investment income, if the beneficiary is the policyholder’s direct heir, spouse or spouse’s direct heir. Pensions based on a single-premium insurance are earned income.

A voluntary pension insurance means old-age pension insurances and fam-ily pension insurances as well as disability pension insurances and unemploy-ment insurances relating to these insurances. Pensions paid on the basis of vol-untary pension insurances must be paid periodically half-yearly or more often during the remaining lifetime of the policyholder or beneficiary or during at least two years.

The amount paid is deemed to be investment income and increased with 50 per cent, if:

the pension is paid during a period shorter than two years or•

the paying of the pension as an old-age pension starts before the insured •person is 62 years old or

a redemption takes place before the age of 62 and the reason for the redemption •is some other personal circumstance relating to the insured person than his

39at least one year long unemployment or his permanent disability, death of his spouse or divorce.

The increase is not imposed to the extent that the taxpayer shows that the premiums were not deducted in taxation in Finland.

2.3.8.5. Benefit from a life insurance policy

Benefit from a life insurance policy is taxable investment income. Besides sav-ings, the benefit also covers surrender price and refund of premiums. Only the yield of a life insurance is taxable if the compensation is paid as a lump-sum or in several instalments within less than two years after the insured has reached certain age and the compensation is in both cases paid to the poli-cyholder when he is the insured person, or to his spouse, the policyholder’s direct heir in ascending or descending line, adoptive child and his direct heir in descending line, foster child or spouse’s child. Benefit from a life insurance policy is investment income even when the insurance has been taken out by the employer of the insured person. If the insurance contract covers several insurances the premium is attributed to different types of insurances on the basis of actuarial criteria.

The yield of a life insurance is calculated by deducting from the compensa-tion the total amount of premiums. The total amount of premiums covers only premiums for one single endowment insurance contract. If the insurance has been taken out by the employer of the insured person the amount to be deducted is the amount which is considered to be the insured person’s salary or wages.

2.3.9 General deductions, losses and deficit in the category of investment income

2.3.9.1 General deductions

In addition to the deductions mentioned above in the description of the invest-ment income from different sources, a taxpayer is entitled to deduct from investment income all expenses incurred in acquiring and maintaining such income (natural deductions).

Exeses incurred in the management of securities, shares and other similar property may be deducted for the part that exceeds 50 euros in the tax year. The amount of 50 euros is deemed cover these expenses also to the extent that the property or the income it has yielded is not taxable.

The taxpayer has a right to deduct his interest expenses only from invest-ment income. The interest expenses are deductible if the debt is related to the acquisition of taxable income or the acquisition or repair of the taxpayer’s or his

40family’s permanent dwelling. Dividend income is deemed to be related to the acquisition of taxable income (even though the dividend is partly tax-exempt). Tax able income does not include a share holder loan which has been deemed to be a taxpayer’s investment income (see 2.3.2). However, the taxpayer has a right to deduct as an expense incurred in acquiring and main tain ing investment income the amount which has been considered to be such income as a shareholder loan (see 2.3.2 and 2.3.4, second last paragraph) and which has been paid back no later than in the fifth tax year after the year in which the loan was taken out. Deductible is also the interest on study loans guaranteed by the Finnish Gov-ernment or the Provincial Government of Åland or study loans guaranteed or granted by an EEA Member State’s (see Appendix 8) statutory body which is a part of the public study grants system.

The amount of deductible interest is unlimited. Interest on a loan related to a voluntary pension insurance is not deductible. The right to deduct interest expenses is also in certain cases applied to inter-

est paid by a guarantor or a surety.The taxpayer has a right to deduct exchange losses on foreign currency debts

taken for acquiring or maintaining in come as natural deductions (for correspond-ing gains, see 2.3.5). Exchange losses relating to debts taken for ac quir ing income which is subject to the tax with held at source from interest are not deductible.

2.3.9.2 Voluntary pension insurance premiums

A taxpayer is entitled to deduct annually at most 5,000 euros voluntary pen-sion insurance premiums. The maximum amount is 2,500 euros if the tax-payer’s employer has paid the premiums for a voluntary pension insurance taken out by him for his employee. This maximum also applies to insurances taken out by a partnership for its partner and by a company for its leaders. The deduction right concerns an insurance taken out by the taxpayer or his spouse in which the taxpayer is the insured person. A further requirement is that according to the insurance contract the paying of the pension as an old-age pension starts at the earliest when the insured person is 62 years old and that the insurance cannot be redeemed on other personal circumstances relating to the policyholder than his at least one year long unemployment or his perma-nent disability, death of his spouse or divorce. Premiums paid for a lump-sum pension insurance are not deductible.

Premiums for a voluntary pension insurance issued by an insurance institu-tion which is not resident in an EEA Member State or doesn’t have a permanent establishment in such a State are not deductible. However, if the insured person moves into Finland and has not been resident in Finland in the five years preced-ing the year of his removal, he is entitled to deduct the premiums for the year of removal and three following years if the premiums are based on an insurance taken out at least one year before the removal.

41Voluntary pension insurance premiums are deducted from the investment

income after natural deductions, interests and losses have been deducted. If the total amount of deductions is higher than the total amount of investment income the taxpayer is entitled to form a separate investment income deficit (a separate deduction). This deficit is deducted primarily from the state income tax on earned income after the deduction of the general deficit and after other deductions, with the exception of study loan credit, have been made . The credit that exceeds the amount of tax on earned income is deducted proportionately from the communal tax, medical care contribution of health insurance contri-bution and church tax.

A loss cannot be confirmed on the basis of these insurance premiums.

2.3.9.3 Losses

The concept of loss in the current tax system has several meanings. The loss of earlier tax years in the category of investment income is deducted from the in vestment income of the tax year ac cord ing to the carry forward prin-ciple during the ten years following the loss year. Losses from business prof-its or agricultural income sources are deduc ted from the invest ment income of the same tax year if the taxpayer or, in the case of spouses, both spouses so de mand; otherwise the losses are carried for ward for ten years and set off against income from the same source.

2.3.9.4 Investment income deficit and credit for the deficit against tax on earned income

If the amount of natural deductions, deductible interests, earlier losses and losses for the tax year from business profits and sources of agricultural income which the taxpayer demands to be deducted, exceeds the amount of invest-ment proceeds for the tax year, the excess is the deficit in the category of investment income.

A taxpayer is entitled to a credit for the deficit against his income tax on earned income according to the following rules:

the credit is 28 per cent of the deficit up to 1,400 euros; the amount is increased •by 400 euros if the tax payer or the spouses have supported a minor during the tax year and by 800 euros if they have supported two or more minors; a credit which is due to premiums paid for a voluntary pension insurance are deductible irrespective of the limits in euros;

the maximum amounts in euros are not applied in 2005–2009 to the credit •for the investment income deficit to the extent that the credit is due to inter-est on a loan used for acquiring the shares of a entrepreneur–shareholder or to a paid back shareholder loan;

42if the taxpayer had been granted the credit for an owner-occupied dwell-•ing under the Income and Capital Tax Act (1988) and this credit would be bigger than the ordinary credit for the deficit, the former is the minimum credit for the deficit;

the rate of the credit is increased by two percentage points (from 28 per cent •to 30 per cent) on the part of the deficit that is due to interest on a loan which the taxpayer has taken for the acqui sition of his first dwelling;

the credit is deducted from the state income tax on earned income for the •same tax year after the disability credit and the child maintenance credit have been deducted from this tax; the maximum credit is then 75 per cent of the overall credit; the credit that has not been deducted from state tax is deducted proportionately from the state tax (including tax on investment income), communal tax, medical care contribution of health insurance con-tribution and church tax;

in the case of spouses, the deficit can also be deducted from the income tax •of one of the spouses if the other has no investment income.

The amount of the deficit for which credit cannot be given is converted into a loss for the tax year and, as such, can be carried forward and deducted from investment income over the next ten years (thus effectively becoming a loss for earlier tax years, see above 2.3.9.3).

See also the last paragraph of 2.3.9.2 concerning a separate investment income deficit which is usually treated in the same way as the ordinary invest-ment income deficit and the corresponding credit.

2.4 Income taxation of individuals: earned income

2.4.1 Definition of earned income

Earned income is defined as any income other than investment income.This category of income includes:

salaries and wages (including fringe benefits) and pensions (including pen-•sion subsidy for long-term unemployed);

insurance compensation paid on the basis of a personal insurance other than •life insurance or a voluntary individual pension insurance;

insurance compensation paid on the basis of a voluntary pension insurance •taken out by the employer;

premiums paid by the employer for a savings insurance or a voluntary pen-•sion insurance, which he has taken out for his employee, are the latter’s tax-

43able earned income but in the case of a voluntary pension insurance they are taxable earned income only if their total amount in a tax year exceeds 8,500 euros (if the taxpayer’s insurances have been taken out by several employers all premiums are included in the maximum amount); this rule also applies to insurances taken out by a partnership for its partner and by a company for its leaders;

premiums paid by the employer for a voluntary pension insurance taken out •for the employee are taxable earned income without limitations if the insur-ance has been taken out in an insurance institution which is not resident in a EEA Member State and doesn’t have a permanent establishment in such a State; however, if the insured person has moved into Finland and has not been resident in Finland in the five years preceding the year of his removal, premiums of less than 8,500 euros paid for the year of removal and three following years are not taxable earned income if the premiums are based on an insurance taken out at least one year before the removal;

the earned income share of business income (including private entre preneurs) •and income from agri culture as well as the earned income share of income from partner ships;

the earned income share of dividends distributed by non-listed companies •(see 2.3.4.2) and disguised dividend;

scholarships and awards;•

80 per cent of the distributions made by employee investment funds;•

royalties and other similar remu neration in respect of copyrights, if these •rights are a consequence of a taxpayer’s own activity.

2.4.2 Exempt income

The Income Tax Act defines the follow ing items of income, inter alia, as exempt income:

certain pension schemes and welfare be ne fits;•

amounts received as maintenance for a child;•

alimony received from a separated or divorced spouse on the basis of a legally •binding commitment or obligation;

major national and international ar tistic awards which are annually named •on application in advance;

inheritances and gifts (for in heri tance and gift tax, see section 4); •

scholarships or other support re cei ved for studies, scientific research and •artistic or sporting activities, subject to certain limitations;

44shares derived by a beneficiary in the income of the domestic estate of a •deceased person treated as a separate taxable entity;

distributions of profit to the partners of a partnership over and above the •amount that has been taxed as the partners’ income (see 2.2.5);

salary or wages derived by a resident individual from employment abroad •lasting for a continuous period of at least six months (the "six-month rule"); the exempted pecuniary salary or wages (excluding certain tax exempt com-pen sations paid by the employer in con nection with an employment abroad) are taken into account when cal culating the health insurance contribution; this rule is not appli cable if the state where the taxpayer per forms his duties of employment does not have a primary right to tax the salary or wages under a double taxation agreement between Finland and that state; the rule does not apply to persons employed by the Go vern ment, a Finnish muni cipality, a do mestic statutory body or Finpro (an association for speeding up the inter-nationalisation of Finnish businesses) or per sons working on board Finn-ish ships or aircraft; for each month of em ployment abroad, the employee may visit Finland for a maximum period of six days without forfeiting the exemp tion; the exemption contains force majeure clauses;

the "six-month rule" is not applied to earned income which has been received •on the basis of a share issue under market value or on the basis of an employee option scheme; however, it is applied also in these cases, if 1) between Fin-land and the state where the work is done there is in force a tax treaty and the income is taxed in that state as income from employment, 2) the taxpayer gives a sufficient account that he has brought the existence of these benefits to the attention of the tax authorities of that state;

certain compensation for specific expenses paid to persons serving at Finnish •diplomatic missions or con sular posts and to persons em ployed by the Finnish Foreign Trade Association; remuneration paid by the United Nations for expert tasks car ried out abroad; remuneration in clud ing pension paid by the State to non-residents employed by Finnish dip lomatic missions or consular posts if the non-resident is not a Finnish national (locally employed per sons); however, pension is not exempt if the decision concerning its payment was made before 1 January 1996 or if the pensioner’s state of residence cannot tax the pension under a double tax ation agreement between Finland and that state;

certain expenses paid by the State, the EU Com mission, an international •organisation or any other administrator of crisis management operation to civil persons participating in such an operation;

certain compensation for specific expenses paid to Members of the Finnish •Government or Parliament or to Members of the European Parliament, to national experts (including those working with the development of border

45regions) serving with the EU Com mission and members of the Com mittee of Regions;

certain expenses paid by the em ployer in connection with an em ployment •abroad or a taxpayer’s (and his family’s) removal and travel ex penses, the expenses for children’s edu cation, ordinary expenses for pri vate servants and certain expenses for dwelling;

income from work for an inter govern mental meeting held in Finland if the •employ ee is a non-resident foreign national;

special subsidy paid to immigrants; •

indemnifications, if they are not received in lieu of taxable in come;•

lump-sum compensations on the basis of the insured person’s death and paid •to his spouse and certain other close relatives, if the compensations are not received in lieu of taxable in come; compensations for material damages are tax exempt if they are not received in lieu of taxable in come; this category includes compensations on areas ranging from industrial co-operation, nature conservation and health care to military service, and compensations may be paid as a lump sum or periodically;

daily allowances and travelling al low ances (the maximum exempt allowances •are fixed annually by the Na tional Board of Taxes);

20 per cent of the distributions made by employee investment funds;•

commuter transport provided by the emplo yer (and a personal travelling •ticket given by the an employer to an employee for commuting between home and place of work is valued at 75 per cent of the current value of the ticket);

benefits from a general health service pro gramme provided by the em ployer •(including temporary nursing of sick children organised by the employer for a maximum period of four days and subject to certain conditions);

customary and reasonable staff dis counts on goods and services;•

the benefit arising from a low-in terest loan received from the em ployer and •the benefit from the right or option to purchase shares in the employing company at a reduced price; both benefits are subject to detailed restrictions concerning the interest rate and purchase price discounts; the income from options in connection with an emp loy ment relationship (usually options for purchasing shares in the emp loyer company) is taxed as the earned income of the original re cipient of the option also when the re cipient has donated the option to a third person;

recreational or leisure-time activities arranged by the employer and including •"gym vouchers" paid by the employer and sports and cultural activities (e.g.

46visits to museums, concerts, theatres, sporting events and other similar occasions, participation in active art courses) offered by the employer (e.g. "culture vouchers", always non-transferable and up to 400 euros annually) to employees who can use them freely.

benefit derived by an employee from the private use of a communication •line arranged for work;

strike pay up to 16 euros a day;•

income from certain natural products (berries and mushrooms, plants for •human con sumption and medicine) other than employment income;

in the case of individuals and un distri buted estates the annual total amount •of exchange rate profits (which are not related to any income earning activity) up to 500 euros;

in the case of persons travelling on assignment of a non-profit-making •organisation and even if they are not employed by the organisation or do not receive any salary or wages for the work relating to that trip, compensation paid by the organisation for travel expenses up to 2,000 euros in a calendar year, daily allowances for 20 days in a calendar year, and accommodation expenses.

lottery prizes from lotteries, which are organised in a EEA Member State •(Member States are listed in Appendix 8) according to the legislation of that country; if the prize can be deemed to be a reasonable consideration for a service (e.g. work done) or salary or wages according to the Prepayment Act, it is not exempt

remuneration for travelling and living costs of witnesses and remuneration •for their economic losses as well as prizes and remunerations paid by public authorities for information, which has contributed to hinder or solve an offence, to catch an offender or to get back a gain from an offence;

economic gain derived by an offender when the offender reimburses the •injured party for the damage caused through the offence by working after conciliation procedure;

subsidies granted by the State for repairing or maintaining buildings that •are part of the national heritage;

2.4.3 Deductions and allowances

A. The taxpayer is allowed to deduct from chargeable income all expenses in curred in acquiring and maintaining such income ("natural deductions"). The follow ing items, inter alia, are con si dered to be natural deductions:

47wages and salaries, and other remu neration paid at the normal going rate •(excluding payments to the tax payer’s spouse or his children under 14 years of age);

an amount paid by a partnership to a partner or by an undist ributed estate •of a deceased person to a beneficiary as a salary at the normal going rate in return for activities performed on be half of the partnership or estate;

pensions paid to former employees;•

membership fees paid to employers’ organisations or trade unions;•

payments to unemployment funds;•

travelling expenses for travelling between the place of residence and the •place of employ ment using the cheapest means of transport if the expenses are more than 600 euros and at most 7,000 euros; for persons receiving unemployment benefits a lower minimum limit (110 euros) is applied;

deduction for a rented flat that enables a taxpayer to reach his regular place •of work (see Appendix 3);

outlays on professional literature, research equipment and scientific literature, •and expenses incurred in scientific or artistic work (unless compensated by scholarships);

obligatory contributions to the farmers’ pension institution, accident •insurance premiums and collective life insurance premiums if they relate to the investment income share of forestry;

municipal tax on real property re lating to the taxpayer’s acquisition of •income

direct and reasonable costs for confidential political (national) posts and •elected municipal officials’ fees, which are levied on such attendance allowances that are paid on the basis of confidential municipal posts.

Non-deductible expenses are those incurred in acquiring tax-exempt in come, as well as expenses related to the tax payer’s living costs including rent for the taxpayer’s flat and expenses for house hold management and child care. How-ever, some expenses which are considered to be living costs, give right to the credit for domestic work, see Appendix 4. Also expenses incurred in acquiring dividend income are deductible.

Expenses incurred for the purpose of acquiring or maintaining income which is exempt under a double taxation agree ment are not deductible. This rule also applies when the expenses would other wise be deductible (as is usually the case) under the Income Tax Act, the Act on the Taxation of Farm Income or the Act on the Taxation of Business Profits and Income from Professional Acti vi ties.

48In addition to natural deductions, the taxpayer may claim deductions against

the total amount of his or her net earned income (to be made from the earned income after natural deductions). For maximum deductions and more de tailed instances, see Appendix 3.

B. The following deductions are allow able in both state income taxation and municipal income taxation:

employees’ obligatory pension in surance contributions, unem ployment •insurance contribution and daily contribution share of the health insur-ance; this rule is also applicable to such pension insurances taken out by sole proprietors and farmers which are not obligatory due to the small amount of the income or the size of the farm and to corresponding foreign pension insurances (see Appendix 3 for further details);

a taxpayer is entitled to deduct from his earned income (after natural deduc-•tions) premiums paid to a supplementary collective pension benefits system organised through a pension fund, pension society or an insurance com-pany; the deduction is at most 5 per cent of the salary or wages paid to the taxpayer by the employer who has arranged the benefits, but not more than 5,000 euros and not more than the amount paid by the employer for the supplementary pension benefits; moreover, the pension may be paid as an old-age pension at the earliest when the insured person is 60 years old (for further details see Appendix 3); premiums for a voluntary pension insur-ance issued by an insurance institution which is not resident in a EEA Mem-ber State or doesn’t have a permanent establishment in such a State are not deductible; however, if the insured person moves into Finland and has not been resident in Finland in the five years preceding the year of his removal, he is entitled to deduct the premiums for the year of removal and three fol-lowing years if the premiums are based on an insurance taken out at least one year before the removal;

a standard deduction for work-related expenses;•

a deduction granted to sailors and de ductions granted to forestry workers; •

a discretionary allowance for cir cumstantial incapacity to pay taxes•

individuals and estates are temporarily entitled to deduct from their earned •income after natural deductions money donations of 850–250 000 euros for the purpose of promoting science or art and given (in tax years 2009–2010) to a publicly financed university (or a corresponding institute of highest education) situated in a EEA Member State or to a fund linked to such a university.

49C. The following allowances may be claimed in state income taxation:

pension income allow ance;•

D. The following allowances may be clai med in municipal income taxation:

earned income allowance;•

pension income allowance;•

disabled person’s allowance;•

student grant allowance;•

a basic allowance for taxpayers with a small income. •

E. Following tax credits (described in detail in Appen dix 4) are allowed against state income tax on earned income:

child maintenance credit;•

credit for domestic work;•

credit for study loans;•

disability credit;•

arned income credit;•

credit for the deficit in the investment income category (see 2.3.9.4).•

2.4.4 Income spreading, training fund and sportsperson’s fund

In state income taxation, the opportunity to spread income over more than on tax year is available to individuals and the estates of deceased persons.

Income spreading can be applied to earned income received during any par-ticular tax year if that income can be attributed to the activities of at least two years (the tax year and the years preceding or following). The income in ques-tion must be at least 2,500 euros and it must con stitute at least one-quarter of the tax payer’s chargeable earned income for the tax year. To qualify for income spreading, the taxpayer must file a request before the end of the assess ment.

Income spreading is carried out by dividing the income to be spread by the number of rel evant years of activity, up to a maximum of five years. The re sulting fraction of the income is added to the taxpayer’s other earned income for the tax year in question and the normal progressive tax scale is applied to this total. Using the same scale, the tax owed on the taxpayer’s other earned income is then subtracted from the first-mentioned total amount of tax owed. The resulting amount is multiplied by the number of relevant years of activity and the new total is charged for the tax year (the tax must be at least 15 per cent of the income that has been spread).

50Income which may be spread includes in come arising in connection with

the sale of a busi ness, income from a copy right or patent if it is not income from in vestment, wages and salaries for ear lier years, pensions for the tax year and the preceding year, a lump-sum payment on the termination of employment, and the total amount of income received by an artist from the sale of his or her artistic works during a single calendar year.

Income derived by a sportsperson directly from sport (in come from sports) and paid to a specific nation-wide training fund or sportsperson’s fund run by a fund named by the Ministry of Finance is not deemed to be a tax year’s income.

Income from sports includes pe cuniary and other prizes from com peting and playing games, income from advertising agreements and income from other co-operative agreements where a sportsperson, corresponding nation-wide sports association and co-operative partner are the contracting parties. Certain training scholarships as well as training subsidies paid by Finnish Olympic Committee or nation-wide sport federations are not included in the income from sports.

Income other than from salary or wages may be paid to a training fund. This income may then be used to cover expenses caused by sports or training dur-ing the tax year. That part of the amount outstanding at the end of a tax year which has not been trans ferred to a sportsperson’s fund, is deemed to be earned income for the tax year. At most 20,000 euros may be left an nually tax-exempt in the fund for the purposes of future training.

A sportsperson, whose income from sports for the tax year, before deduct-ing expenses incurred in acquiring and maintaining such income, is at least 9,600 euros, may make as a tax exempt transfer from his income from sports to a sportsperson’s fund no more than 50 per cent of the gross income from the sports. The maxi mum annual amount is 100,000 euros. Such transferred income is regarded as chargeable income for at least two and at most ten tax years fol-lowing the end of the sportsperson’s career. The return on the fund for these years is income for the tax year following the last such year. The sportsperson’s career is deemed to be ended if he earns less than 9,600 euros as income from sports for two consecutive tax years and he does not show that he is going to continue his career, or if he has suffered injuries, or if he has in formed the sport-sperson’s fund that he is going to end his career.

In the case of a sportsperson’s death all the funds in a training fund or sport-sperson’s fund are regarded as chargeable income for the year of death.

Funds in a sportsperson’s fund which are regarded as chargeable income, are deemed to be taxable earned income to their full amount.

A training fund and a sportsperson’s fund are tax-exempt in the case of income from sports.

512.5 Taxation of business profits, etc.

Business profits are taxed at a flat rate of 26 per cent.

2.5.1 Business profits and income from professional activities

The Act on the Taxation of Business Profits and Income from Professional Activities defines the tax base for the taxation of business profits and income from professional activities as the diff e rence between the proceeds and ex penses (net income) of a business or profession.

For the purposes of taxation a taxpayer’s various business activities and pro-fes sional activ ities are treated as one single source of income.

2.5.2 Chargeable income

Business profits and professional in come subject to tax are defined as in come in money or money’s worth de rived from economic activity. The follow ing items of income, inter alia, are chargeable to tax:

sales proceeds and other com pen sation received in respect of in ven tories, •investments1 and fixed assets as well as in respect of any other tangible (real property as well as other assets belong to a business income source if they are used solely or mainly for the purpose of directly or indirectly contrib-uting to the business; examples of such real property are plants, workshops, buildings for business administration, as well as residential buildings for the personnel and buildings used for social purposes) or intangible assets used for the purpose of conducting business or performing professional activi-ties (for exceptions, see 2.5.5);

compensation for renting, for work or for services rendered and for other •similar activities carried out in the form of economic activity;

dividend (see 2.5.3), interest and any other income derived from assets •belonging to a business;

compensation for letting out a business or profession or property, or the •rights or bene fits belonging thereto;

profits derived from financial assets, unrealised gains of financial instru-•ments held for trading entered into profit and loss account, exchange rate gains on the basis of claims and loans for business purposes;

1 Investments comprise securities, real pro perty and other similar property of a financial, in-surance or pension institution, excluding claims, acquired for investment purposes or for the safeguarding of in vest ments.

52such unrealised profits from investments related to unit-linked insurance •contracts that are entered into profit and loss account (in the case of insur-ance companies);

unrealised gains from financial instruments at fair value through profit or •loss and fair value hedge entered into profit and loss account in accordance with the Act on Credit Institutions or a corresponding foreign Act;

income from timber and the transfer of the right to fell trees;•

corrections made to items in the ac counting books in certain cases if the •probable acqui sition cost or disposal price exceeds the book value for tax purposes; the deductions relate to credit losses of business claims and final losses of other financial assets, investments and inventory valuation as well as depreciations calculated for fixed assets not subject to wear and tear.

2.5.3 Dividend received by corporate bodies

2.5.3.1 General

The dividend taxation system is also applied to interest paid on the participa-tion capital of a co-operative society, that part of the profit which is paid on the basic reserves of a savings bank, the interest paid on the investment in the additional reserves of a savings bank, interest which is paid on the guarantee capital of a mutual insurance company or insurance association.

If diidend is paid on a share which has been lent (under a security lending contract), the amount paid by the bor rower as a substitute (substitute divi dend) is treated in the same way as ordinary dividend.

In the case of disguised dividend 70 per cent is taxable. Of dividend received by an individual or an estate of a deceased person 70

per cent is taxable income (subject to the rules explained in 2.3.4.4 first para-graph).

For taxation of individual shareholders see 2.3.4.

2.5.3.2 Domestic situations

In a domestic situation both the distributing and the receiving company are resident in Finland.

As a general rule dividend is tax exempt. There are two exceptions:

If dividend is received on the basis of investment shares, 75 per cent 1. ("3/4-rule") of the dividend is taxable (at the corporation tax rate of 26 per cent). Only financial, insurance or pension institutions can have such shares and so only they are governed by this rule. Investment shares are shares which are not part of fixed assets or current assets of the entities.

53Similarly, 75 per cent of dividend is taxable (at the corporation tax rate of 2. 26 per cent), where the distributing company is a publicly listed company (see 2.3.4.1) but the recipient company is a non-listed company which does not own directly at least 10 per cent of the share capital of the distributing company at the time of distribution.

2.5.3.3 Dividend is distributed by a company resident in an EU Member State

If the distributing company is resident in an EU Member State, dividend is taxable in the following three cases:

If the dividend is received on the basis of investment shares and the distrib-1. uting foreign company is not a company referred to in Article 2 of the EU Parent–Subsidiary Directive (90/435/EEC) of whose capital the receiving company owns directly at least 10 per cent, 75 per cent of the dividend is taxable (at the corporation tax rate of 26 per cent).

Only financial, insurance or pension institutions can have investment shares and so only they are governed by this rule. Investment shares are shares which are not part of fixed assets or current assets of the entities.

Article 2 of the Parent–Subsidiary Directive includes the following criteria (non-fulfilment of any one of them results in taxability):

a) The distributing company takes one of the forms which are listed in the Directive.

b) According to the tax laws of a Member State the distributing company is considered to be resident in that State and, under the terms of a double taxa-tion agreement concluded with a third State, is not considered to be resident outside the European Community.

c) The distributing company is subject to one of the taxes mentioned in the Article, without the possibility of an option or of being exempt.

If the distributing company is not a company referred to in 1) resident in a 2. EU Member State, 75 per cent of the dividend is taxable (at the corporation tax rate of 26 per cent).

This rule concerns dividend not received on the basis of investment shares and not covered by 3) (a publicly listed company distributes dividend to a non-listed company). It covers the ordinary case where a Finnish resident company receives dividend on the basis of its participation in a company resident in an EU Member State. As there is no minimum participation requirement, it also covers portfolio dividends.

54 If the conditions in 1) a)–c) are not fulfilled and between Finland and the

EU Member State in which the distributing company is resident there is not in the tax year in force a tax treaty or the treaty is not applied to the dividend in question (for instance due to a limitation of benefits rule), 100 per cent (instead of 75 per cent) of the dividend is taxable.

Moreover, 75 per cent of dividend is taxable (at the corporation tax rate of 3. 26 per cent), where the distributing company is a publicly listed company (see 2.3.4.1) but the recipient company is a non-listed company which does not own directly at least 10 per cent of the share capital of the distributing company at the time of distribution.

It should be noted that all tax treaties between Finland and EU Member States include an intercompany exemption. Therefore, if the recipient Finnish company has at least 10 per cent participation in the voting power of the dis-tributing company, dividend is tax exempt in Finland. This exemption, which overrides the Finnish domestic legislation, is complete (100 per cent of dividend is exempt) and it usually applies to all types of dividends and irrespective of the character of the distributing company and the receiving company.

Some intercompany exemptions do not use the 10 per cent voting power threshold but refer directly to the Finnish domestic tax law. Foreign dividend is then exempt from Finnish tax to the extent that the dividend would be exempt from tax under Finnish domestic tax law if both companies were resident in Finland. In that case the Finnish domestic tax law (described above in 2.5.3.2) is applied as such.

For these reasons the relevant tax treaty should always be consulted when determining how dividend distributed by a company resident in an EU Mem-ber State is treated in the hands of the Finnish recipient.

2.5.3.4 Dividend is distributed by a company resident outside the EU area

If the distributing company is resident in a non-EU Member State, the situa-tion is as follows:

If dividend is received on the basis of investment shares, 75 per cent of it is 1. taxable (at the corporation tax rate of 26 per cent). Only financial, insurance or pension institutions can have such shares and so only they are governed by this rule. Investment shares are shares which are not part of fixed assets or current assets of these entities. The participation exemption (see 2.5.3.3 item 1) is not applied to companies which are resident outside the EU area.

Similarly, 75 per cent of dividend is taxable (at the corporation tax rate of 2. 26 per cent), where the distributing company is a publicly listed company

55(see 2.3.4.1) but the recipient company is a non-listed company which does not own directly at least 10 per cent of the share capital of the distributing company at the time of distribution.

In 1) and 2) where the type of shares and the types of (distributing and receiving) companies are decisive, the taxable part of the dividend is always 75 per cent.

Moreover, 75 per cent of dividend is taxable (at the corporation tax rate of 26 3. per cent) in all other cases, if between Finland and the country of residence of the distributing company there is in that tax year in force a tax treaty, which is applied to the dividend distributed by that company. In practice this is the most important case that includes the ordinary relationships between a parent company and its subsidiary (direct and portfolio investments) in tax treaty situations under the assumption that the treaty is applicable.

If there is no such treaty between Finland and the country of residence of the distributing company or an existing tax treaty cannot be applied to the divi-dend in question (for instance due to a limitation of benefits rule), 100 per cent (instead of 75 per cent) of the dividend is taxable.

It should be noted that all tax treaties between Finland and Non-EU Member States include an intercompany exemption. Therefore, if the recipient Finnish company has at least 10 per cent participation in the voting power of the dis-tributing company, dividend is tax exempt in Finland. This exemption, which overrides the Finnish domestic legislation, is complete (100 per cent of dividend is exempt) and it usually applies to all types of dividend and irrespective of the character of the distributing company and the receiving company.

Some intercompany exemptions do not use the 10 per cent voting power threshold but refer directly to the Finnish domestic tax law. Foreign dividend is then exempt from Finnish tax to the extent that the dividend would be exempt from tax under Finnish domestic tax law if both companies were resident in Finland. In that case the Finnish domestic tax law (described above in 2.3.3.2) is applied as such.

For these reasons the relevant tax treaty should always be consulted when determining how dividend distributed by a company resident in a Non-EU Member State is treated in the hands of the Finnish recipient.

2.5.4 Exempt income

The following receipts are exempt: capital paid up by shareholders, payments received from disposal of treasury shares (companies’ own shares), refunds of income taxes (but not interest on the tax refunded) and distributions from partnerships (see below). Con nection charges collected by companies which

56maintain electricity, telephone, water, sewage or district heating systems are exempt from tax, provided that these charges are refundable to the payer. For the participation regime for capital gains, see 2.5.5.

Since partnerships are not treated as separate entities for tax purposes, the taxable income of a partnership is allocated to the partners. Consequently, actual distributions made by the part nership do not constitute taxable in come. A sim-ilar rule applies to shares of income from those domestic estates of deceased persons which are taxed separately from their beneficiaries. If a resident ben-eficiary of a foreign estate of a deceased person has received in come from the estate and the estate is liable to pay tax for the income in Finland, the benefici-ary is exempted.

In the case of financial institutions there are special rules concerning inter-est on non-performing claims for the years 2007 and 2008.

The repurchase or lending of securities is not deemed to be mean aliena-tion in certain cases.

Certain transfers of real property in the context of forming nature conser-vation areas are exempt.

2.5.5 Participation exemption for capital gains

Capital gains derived by companies (corporations) from transfer of shares are not taxable income and acquisition costs of shares are not tax deductible, if:

the transferor of shares is a company, a cooperative, a savings bank or a 1. mutual insurance company not engaged in investment activity (venture capital business); and

the shares belong to the transferor’s fixed assets; and2.

the transferor has owned at least 10 % of shares in the capital of the company 3. to be transferred uninterruptedly for at least one year during a period that has ended at most one year before the transfer and the transferred shares are among the shares which have been owned in this way; and

the company to be transferred is not a residential housing company, a real 4. estate company or a limited company the activities of which mainly consist of real estate holding or managing;

the company to be transferred is 5. a) domestic (Finnish resident) company or,b) company referred to in Article 2 of the EU Parent–Subsidiary Directive (90/435/EEC; for the details, see 2.5.3.3) or c) company resident in a country with which Finland has in that tax year

in force a tax treaty, which is applied to dividends distributed by that company.

57If the difference between the transfer price and the net book value of the

shares is due to an extraordinary depreciation (write-downs on shares have not been possible on 19 May 2004 and thereafter; write-downs made before that date, i.e. the taxpayer has shown that the current value of the shares at the end of a tax year has been substantially lower than its book value and has then made an extraordinary depreciation that has reduced the book value to the current value), that amount of the difference is taxable income. The same applies to cases where a subsidy granted by a public body or a provision has been deducted from the acquisition price. And finally, taxable is also that part of the transfer price that corresponds to a tax-deductible loss resulting from an earlier transfer of the relevant shares between members of a same group.

Capital losses accruing from transfer of shares which are fixed assets but can-not be transferred exempt from tax can be deducted only from taxable capital gains derived from transfer of shares which are fixed assets. Similarly, when a company transfers shares in a partnership the difference between the acquisi-tion cost and the transfer price can only be deducted from taxable capital gains. The deduction can be made in the tax year and the following five years. This limitation is not applied to transfer of shares in residential housing companies, real estate companies and real estate holding or management companies men-tioned in subparagraph 4) above.

However, if in such a case the taxpayer has not owned the transferred shares uninterruptedly for at least one year the deductible loss is lowered by the follow-ing amounts that the transferred company has paid to the taxpayer:

dividend on the basis of share ownership during the ownership period,1. any contribution under the system of contributions between affiliated 2. companies, and any comparable item that has reduced the assets of the transferred 3. company.

The capital loss is not deductible when the transferred company is resident in a State other than Finland and it is not a company referred to in Article 2 of the EU Parent–Subsidiary Directive (for details, see 2.5.3.3) and between Fin-land and the country of residence of the transferred company there is not in that tax year in force a tax treaty, which is applied to dividend distributed by the transferred company.

2.5.6 Allowable expenses

In general, expenses are deductible if they are incurred for the purpose of acquiring or maintaining income. The fact that it was the taxpayer’s intention to incur a particular expense for this purpose is usually the decisive test for deductibility.

58Deductible expenses include the follow ing:

expenses incurred in the acquisition of inventories and investments (tak-•ing also into account the international account standards; see footnote on page 50);

expenses incurred in the acquisition of fixed assets (financial aid from pub-•lic authorities for such ac qui sition reduces deductible expenses; they are also reduced when another entity, through its business activity, takes part in paying the acquisition costs);

expenses relating to depreciation of claim certificates, securities and deriva-•tives made in the ac count ing books of a credit institution in accordance with the Act on Credit Institutions or a corresponding foreign Act;

rents for real property and water rights as well as for premises used in busi-•ness or professional activities;

wages and salaries, pensions, and pe riodic relief payments or similar pe riodic •remuner ation to employees (or former employees) as well as in surance pre-miums and other similar payments; contributions for life insurance are subject to re strictions;

profit remuneration of employee investment funds;•

contributions to the company’s pen sion fund to the extent that it covers the •actuarially approved pension liability; contributions made by in surance companies, insurance as so ci ations and other similar in surance institutions, pension funds and other similar pension institutions to cover the actuari-ally approved lia bilities;

advertising expenses;•

research and development expenses;•

start-up costs and reorganisation expenses;•

50 per cent of entertainment ex penses;•

membership fees paid to employers’ organisations and trade unions;•

losses due to fraudulent conversion, theft or other crimes involving fi nancial •assets, reductions in the value of business claims and final re ductions in the value of other fi nan cial assets (in the case of pension insurance institutions with statutory insurances this rule is applied only to such institutions which have made a separate reservation calculated on the basis of the pension legislation, see 2.5.7);

annual and other rebates;•

interest paid on loans obtained for business purposes; however, that part of •the interest corresponding to the entrepreneur’s private use (in part nerships

59and sole proprietor ships) which exceeds profits derived from business activities (calculated on the basis of detailed rules), is not de ductible;

amounts paid by limited companies for shares which have been alienated in •connection of employment relationship if the shares have been purchased in public trading in Finland or in corresponding trading elsewhere; market value at the moment of alienation or subscription is the maximum, and the subscription price paid by the recipient of the shares is deducted;

unrealised losses of financial instruments held for trading and entered into •loss and profit account;

such unrealised losses from investments related to unit-linked insurance •contracts that are entered into profit and loss account (in the case of insurance companies);

exchange losses on claims or loans obtained for business purposes;•

co-operative societies are entitled to deduct patronage dividends paid on •members’ purchases from the so ciety;

municipal tax on real property con cerning real property used in the business •or profession;

expenses relating to forestry;•

payments to various guarantee and compensation funds (the Deposit •Guarantee Fund, the Government Guarantee Fund, the Guarantee Fund and the Investor Compensation Fund);

corporate bodies (see 2.2.4) are entitled to deduct money donations of 850–•250 000 euros for the purpose of promoting science, art or Finnish cultural heritage and given to a EEA Member State or to a publicly financed university (or other institutes of highest education) on that area or to a fund linked to such a university; they are also entitled to deduct money donations of 850–50 000 euros for the purpose of promoting science, art or Finnish cultural heritage and given to associations, foundations or other institutions on the EEA on the condition that they have been nominated by the National Board of Taxes (Deductible Gift Recipient) and that their purpose is the maintenance of Finnish cultural heritage; similarly, these corporate bodies are entitled to deduct donations of 850–25,000 euros for promoting art or science;

in the case of individuals carrying on a business or practising a profession •(i.e. usually sole proprietors) the difference between increased living costs due to a business trip and tax exempt maximum daily allowance as well as the similar difference (on the basis of kilometre allowance) if the individual uses his own car for such a trip.

60The following expenses are not de ductible:

income taxes;•

salaries, wages, pensions and other remuneration paid to a spouse or other •family member under the age of fourteen;

connection charges collected by companies which maintain elec tri city, •telephone, water, sewage or district heating systems provided that the charges are refundable to the payer;

acquisition costs of shares where the capital gains derived by companies •from transfer of those shares are tax-exempt under participation exemption for capital gains (see 2.5.5);

payments for redemption of companies’ own shares;•

expenses incurred for the purpose of acquiring or maintaining tax-exempt •income (the part which exceeds the tax exempt income is deductible);

expenses incurred for the purpose of acquiring or maintaining income which •is exempt in Finland under a double taxation agreement; this rule also applies when the expenses would otherwise be deductible under the Income Tax Act, the Act on the Taxation of Farm Income or the Act on the Taxation of Business Profits and Income from Pro fessional Ac tivities;

fines, parking tickets and similar penalty payments;•

bribes and benefits being bribes by nature;•

substitute divi dend to the extent that the ordinary dividend which it replaces •would be tax exempt for the payer of the substitute dividend;

loss or depreciation of receivables other than sales receivables if the debtor •is a limited company and the creditor is a limited company, a cooperative, a savings bank or a mutual insurance company not engaged in investment activity, which alone or together with other group companies owns at least 10 per cent of the share capital of the debtor; group subsidies and other similar expenses without counter-performance to improve the financial position of such a limited (group) company are also non-deductible.

2.5.7 Allocation

As a rule, chargeable profits are allo cated for purposes of taxation to the tax year in which goods are delivered or services rendered. Minor receipts may be allocated to the tax year during which the taxpayer receives the payment. If the taxpayer receives interest or rent in advance, he may either disclose it in full immediately or allocate it in equal annual instal ments over the years of the loan or rental period. The same holds for any other income of a similar nature,

61provided that it can be attributed to at least two subsequent years. Items other than interest may not be allocated to a period of more than ten years, and in no case may income be allocated to two or more years if the taxpayer does not follow the same procedure in his own bookkeeping.

In the case of products which take a long time to manufacture, expenses and income may be allocated according to the degree to which manufacture is complete if the same principle is follow ed in accounting (and taking into account international accounting standards).

In principle, income and expenses are allocated on an accruals basis. This means that, apart from several ex cep tions set out below, an expense is allo cated to the year during which the obli gation to pay it arises, i.e. generally when the taxpayer receives the goods or services for which money was paid. However, minor expenses may be allo cated to the tax year during which the taxpayer made the payment.

Interest, rents and similar expenses must be allocated to the year in which they are incurred. However, the taxpayer may, if he or she so elects, deduct inter-est incurred on loans used to finance the construction of a new power station, factory or mine as annual depreciations of not more than 10 per cent. Thus, the annual deductions for depreciation need not be equal, but in no year may they exceed 10 per cent of the original amount to be depreciated. Interest paid on the capital investment made by the Government or the Government Guaran tee Fund must always be allocated to the year in which it is incurred.

Unless otherwise provided for, other expenses which generate or maintain income over a period of at least three years are allocated equally to the years in question up to a maximum period of ten years. This provision covers such expenses as organisational costs and the costs of long-term advertising cam-paigns. Expenses incurred in research and development work (except expenses incurred for the acquisition of research buildings) may, at the taxpayer’s dis-cretion, be either deducted in the year in which the obligation to pay them arises or depreciated over two or more years.

The premium received by an option writer is allocated to the tax year when the option was written. However, if the exercise period of a publicly traded option is at most 18 months, the premium is allocated to the tax year in which the option is closed or exercised or when it expires. If the writer of a put option buys the underlying instrument or commodity of the option as a consequence of exercising the option the deductible acquisition cost of the acquired instru-ment or commodity is the acquisition price of the instrument on the basis of the contract minus an amount corresponding to the premium.

The premium paid by an option holder to the writer of the option is deduct-ible in the year when the option is closed or exercised or when it expires. If the holder of a call option exercises the option and buys the underlying instru-ment or commodity, the acquisition cost of the instrument or commodity is the amount corresponding to the underlying instrument’s or commodity’s acquisi-tion price on the basis of the contract plus the amount of the premium paid.

62Profits arising from the appreciation or depreciation of claim certificates,

securities and derivatives (and other financial assets) made in the ac count-ing books are allocated to the year in which they are entered in the taxpayer’s bookkeeping as earnings or losses. The acquisition cost of such financial assets is deemed to be the original acquisition cost of the asset increased or decreased by the amounts that have been treated as earnings or losses in taxation.

In principle, the acquisition costs of inventories are disclosed when assets are sold, con sumed or lost. However, in ven tories (goods in stock) at the end of the tax year are estimated for tax purposes at a value not exceeding the acquisi-tion cost or market value, whichever is lowest. The acquisition cost is calcu lated on a first-in first-out (FIFO) basis. Overhead expenses which are related to the acquisition and manufacturing of the goods may be added to the acquisition costs of the inventory if they are entered in the taxpayer’s book-keeping and if their amount is significant in com parison to the variable costs.

Investments (see footnote on page 31), excluding buildings, owned by a bank or an insur ance company, are valued in the same way as inventories at a value not exceeding the acquisition cost or market value, whichever is lowest.

Expenses incurred in acquiring fixed assets are deductible through dep-re ciation. The acquisi tion cost of the taxpayer’s entire stock of machinery and equipment is written off annually as a single item using the declining balance method. Under this method, the dep reciation base consists of the net book value of all such assets at the beginning of the year plus the acqui sition value of assets put into use during the tax year less any sales proceeds, insurance com pensation and the like received for assets sold, damaged or lost during the tax year. The maximum annual depreciation is 25 per cent of this base, although the tax payer may claim a smaller allowance if he wishes. If the taxpayer can show that the current value of these assets is less than the depreciation base reduced by the full 25 per cent, he is entitled to an additional depreciation that will reduce the depreciation base to the current value.

With regard to machinery and equip ment with an economic life not exceed-ing three years or with a maximum acquisition price of 850 euros (this latter rule is not applied if the taxpayer is taxed on the basis of the Income Tax Act), the taxpayer may either write them off in full in the tax year in which they were acquired or depreciate them along with other machinery and equip ment. Such deduction must not be greater than 2,500 euros in any tax year. The acquisition cost of cars, buses and lorries used in a transportation business may be depre-ciated by ap plying the following maximum dep reciation rates: 25, 20, 20 and 15 per cent for the remaining years. If the taxpayer chooses to write off these products (machinery, equipment, cars etc.) in full in the year of acquisition, all proceeds from the sales of such assets, including damages, insurance compen-sation, etc., must be entered in the books as income for the year in which they were received.

63Another exception to the main rule is that the acquisition cost of boats and

ships that are not directly used in the business activities of the taxpayer may be depreciated at annual rates of no more than 10 per cent in a single tax year.

The acquisition cost of real property (to which no depreciation method is ap plied) is deducted when the real property is alienated. This principle also applies to securities, but if the taxpayer can show that the current value of secu-rities other than shares (in a limited company) or of fixed assets other than land area is at the end of the tax year substantially lower than its book value (and taking into account earlier extraordinary depreciations) the taxpayer is entitled to an extraordinary depreciation that will reduce the book value to the current value. If the asset’s current value at the end of any future tax year substantially exceeds the book value the excess will be added to the taxable income.

Buildings and other constructions are depreciated using the declining bal-ance method. Each building must be dep reciated as a separate item. Maximum rates of depreciation range from 4 to 20 per cent, depending on the use of the building. The taxpayer may vary the depreci ation from year to year within the applicable percentage range. If he can show that the current value of the build-ing is less than its book value he is entitled to an additional depreci ation. Large repair costs can either be set off against taxable profits immediately or included in the depreciation base of the building.

The depreciation rates for buildings and other constructions are as follows:

Type of building or construction Rate per annum applied to reducing balance, %

– Shops, warehouses, factories, work-shops, power stations or similar buildings 7

– Residential buildings, office buildings or other similar buildings 4

– Tanks for storage of liquid fuel and acids and other similar storage buildings and constructions made of metal or other similar material 20

– Light constructions of wood or other comparable material 20

– Buildings or constructions or parts ofbuildings or constructions used exclus-ively for research and development 20

The acquisition cost of bomb shelters or that part of the acquisition cost of a build ing which relates to a bomb shelter is depreciated at an annual rate of not more than 25 per cent, i.e. over four years or more. This also applies to the acquisition cost of constructions, equip ment, machinery and other items for the prevention of water and air pollution and to the acquisition cost of a natu-ral gas pipeline connection.

64The acquisition cost of gravel and sand pits, mines, quarries, peat bogs and

similar property may be depreciated by an amount equivalent to the quantity of the resource used up annual ly.

The acquisition cost of fixed assets other than those referred to above, such as railways, bridges, quays, dams and basins, are depreciated by the straight line method over their probable eco nomic lives (maximum 40 years). The acquisition costs of patents, copyrights, trade-marks, etc., are depreciated by the straight-line method over ten years or over a shorter period if the taxpayer can show that the probable economic life of the asset is shorter than ten years.

Any sum calculated on the basis of traffic density and paid in compensa-tion by the State to a private company for constructing and maintaining a road (or a railway) whose ownership is to be made over to the State at a future date, is allocated as income – following the main rule – to the year in which the ser-vice has been provided. Costs for con structing and maintaining such a road (with the exception of maintenance costs of less than three years’ duration) as well as the interest incurred during the period of construction on loans used to finance the construction, are depreciated by the straight line method over the remaining period (minimum 10 years) for which the contract between the State and the private company has been concluded and starting from the tax year in which the road or railway was put in use.

As a rule, the proceeds of sales and other com pensation from assets which are sold or have suffered a loss through destruction, theft or other crime, as well as the non-depreciated part of the ac quisition costs of such assets, are allo cated for the purposes of taxation to the year in which the assets are disposed of or when the loss has been noticed. In the same manner, if the depreciation base for machinery and equipment is ne gative, i.e. if the sales proceeds, in surance com-pensation, etc., received for machinery and equipment exceed the balance of the acquisition cost of all assets, the excess is treated as that year’s income.

In the case of destruction or damage of fixed assets through fire or accident, the taxpayer may deduct the remaining acquisition costs from expenses due to repairs or the acquisition cost of new depreciable fixed assets (which are subject to wear and tear) within the two following tax years, the balance thus forming the depreciation base (re pla cement reserve). The replacement re serve is formed on the taxpayer’s de mand and only if the taxpayer intends to continue in busi-ness. The reserve must also be shown in the bookkeeping; it must be deducted from the acquisition cost of new assets during the following three years. Any part of the reserve which has not been deducted as de scribed is included in the taxable income of the last year (with an increase of 20 per cent) in which it could have been deducted. For special reasons the tax payer may apply for an exten-sion of the deduc tion period (up to three years).

The replacement reserve can also be formed on the basis of sales of shares carrying the right to the enjoyment of business premises in a building owned by a real estate company. In this case, the reserve may be deducted from the

65acquisition cost of new shares carrying the right to the occupation of business premises or expenses due to repairing such premises only when the re place ment reserve has been formed on the basis of proceeds from the sale of a build ing or shares carrying the right to the enjoyment of business premises.

As a rule, any asset may be depreciated for tax purposes at a slower, but not faster, rate than for the purposes of accounting.

2.5.8 Reserves and provisions

In certain limited cases, the taxpayer has a right to create untaxed reserves pro vided that they are entered into the tax payer’s accounts. These reserves be come taxable at current rates, if dis mant led.

Savings banks and financial institutions are entitled to make a pro vision for bad and doubtful debts amount ing to 0.6 per cent of receivable accounts out-standing at the end of the tax year. The annual reserve may not exceed 0.6 per cent and the accumulated unused reserve of 5 per cent of accounts receivable at the end of the tax year.

If the provision for bad debts exceeds the maximum amount in any one year, the excess is regarded as chargeable income for that tax year.

Foundations engaged in statutory pension insurance or occupational pen-sion insurance activity have their own particular reserves.

Individuals (sole proprietor), part ner ships and the estates of deceased persons having only individuals or estates of deceased persons as partners, are en titled to set up an operating reserve. The accumulated unused reserve at the end of the tax year must not exceed 30 per cent of the wages and salaries subject to with-holding which were paid during the previous 12 months. If the reserve exceeds the maximum amount, the excess is added to taxable income.

Taxpayers engaged in construction, shipbuilding or in activities in the metal and engineering industries who are subject to a guarantee commitment in re spect of defects in buildings, bridges, aircraft, large ships, or large units of machinery constructed or manufactured by them are entitled to deduct a guaran tee provision of up to the likely cost of work carried out under guaran-tee. The guarantee provision is deducted during the tax year in which the prod-uct is delivered. Unutilised guarantee pro visions are taxed as income for the tax year in which the guarantee expires.

When the taxpayer is able to de mon strate that the replacement cost of in ventories ordered but not yet received is, as at the date of the balance sheet, at least 10 per cent lower than the price irrevocably agreed on in writing with the supplier, he is entitled to deduct the excess of the agreed price over the replace-ment cost against the chargeable income for the current year.

See also replacement reserve in the third last paragraph of 2.5.7.

662.5.9 Losses

2.5.9.1 General rules

If the taxpayer’s business income profits, agricultural income source or other source of income shows a net loss, this loss is carried forward for the purpose of income tax and set off against income from the same source in the subsequent ten tax years. Losses are deducted in the order in which they are incurred.

If more than 50 per cent of the shares in a company or a business partnership have changed hands (for reasons other than inheritance or bequest) during the year in which a loss is recorded or thereafter, the right to carry forward is for-feited. If such a majority share transfer has taken place in a company or partner-ship which owns at least 20 per cent of the shares in the loss-making company or partnership, the shares in the loss-making company or partner ships are deemed to have been trans ferred. Regional tax offices may, upon application by the tax-payer, grant exemptions to this rule under certain conditions. Even then a lim-ited company or a co-operative society may deduct not more than the amount that corresponds to the difference between the income for the tax year before the loss is deducted and any contribution from an affiliated company. In the case of a loss of a com pany quoted on a Stock Exchange the right to carry forward is not forfeited if more than half of shares, which are not quoted on such a list, have not changed hands. Also the 20 per cent rule is then not applied. As a consequence of exemptions granted by regional tax offices and the statutory exceptions the main rules are usually not applied to companies quoted on the Stock Ex change.

In the case of a merger, the recipient corporate body and its share holders must have held more than 50 per cent of the shares of the transferring cor porate body in order to retain the right to carry forward its losses. There are no special provisions for allowing the losses of one company in a group to be deducted from the profits of other companies in the same group.

In a division, the losses of the original corporate body are transferred to the new corporate bodies to the extent that it is obvious that the losses have arisen in the business activity that has been transferred to the receiving corporate body. Otherwise they are transferred in the same proportion as the net assets of the corporate body being dissolved are transferred. If the original corporate body has several sources of income, any losses in a particular source of income are trans ferred to the corporate bodies with a corresponding source.

2.5.9.2 Restructurations and the treatment of losses of a permanent establishment of a Finnish corporate body

If, in the context of a merger, division, transfer of assets (Article 52 d in the Act on the Taxation of Business Profits and Income from Professional Activi-ties) or removal of the statutory residence (Article 52 g in the Act on the Tax-

67ation of Business Profits and Income from Professional Activities) of a Euro-pean Company (SE) or Cooperative Society (SCE), the assets to be transferred to an other EU Member State, include a permanent establishment of the trans-ferring corporate body and the permanent establishment is situated in that other or a third EU Member State, the income of the corporate body that has transferred the assets is increased by the permanent establishment’s losses (for ten previous tax years) of that have been deducted in the taxation of the cor-porate body situated in Finland and that have not been covered with the per-manent establishment’s profits of subsequent tax years.

2.5.9.3 Restructurations and the deduction of losses of a permanent establishment which a foreign corporate body has in Finland

If a corporate body has been founded in the context of a division or a trans-fer of assets (Article 52 d in the Act on the Taxation of Business Profits and Income from Professional Activities) for continuing the activity of a Finnish permanent establishment of a corporate body resident in another EU Member State (in other words a Finnish permanent establishment of foreign corporate body becomes a Finnish corporate body, a subsidiary), that Finnish corpo-rate body is entitled to deduct from its income the confirmed loss of the Finn-ish permanent establishment according to the general rules (10 years period, subject to the rules concerning change of ownership as explained above). If a Finnish permanent establishment of a corporate body resident in another EU Member State in the context of a merger, division or transfer of assets becomes a permanent establishment of another corporate body resident in that or a third Member State, the latter corporate body ("the new head office") is enti-tled to deduct from its income the confirmed loss of the Finnish permanent establishment according to the same general rules.

2.5.10 Tax incentives (developing regions)

For new investments and significant extensions made between 1998-2011 by small and medium-sized enterprises, the depreciation rate is the ordinary maximum dep re ciation rate increased by 50 per cent for the year in which the investment was put into use and the following two years. This incentive will be applicable for the last time in the assessment for 2014.

EU state aid rules (the recovery of state aid) can in some cases hinder the use of 50 per cent depreciation.

The incentive is applied to such lines of activities as production and tourism but excludes shipbuilding and ship repairs, mining of coal or lignite, process-ing of agricultural products, and production of steel, steel pipes, cars, car parts or synthetic fibres.

68A small or medium-sized enterprise has been defined as an enterprise which

fulfils the following criteria at the end of the tax year:

it employs no more than 249 em ployees,1.

its turnover does not exceed 20,000,000 euros or the total sum of its bal-2. ance does not exceed 10,000,000 euros, and

it fulfils the criteria (other than those in 2) of the definition of a mi-3. cro, small and medium-sized enterprises in the Commission Regulation 800/2008/EC of 6 August 2008 declaring certain categories of aid compat-ible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation).

A production unit is an establishment that industrially produces goods or finishes products, peat production plant separate from agriculture and workshop that mainly produces or finishes products. A travel enterprise means hotels, motels or comparable businesses of accommodation, restaurants linked to such an activity and owned by hotelkeeper, and farm tourism if it is a separate busi-ness in relation to agriculture.

The incentive also applies to transfers of assets (see 2.5.12.2).

2.5.11 Contributions between affiliated companies (group contribution)

Contributions from an affiliated com pa ny may be deducted from the charge-able profit of the contributing company and added to the chargeable profit of the recipient company. Such a transfer of profit is allowed between affiliated companies if the group of companies and the transfer of profit meet the fol-lowing requirements:

both companies are Finnish;•

the parent company owns at least 90 per cent of the share capital of the affili-•ated com pany during the whole tax year;

both companies are engaged in business and are not savings banks, finan-•cial, insur ance or pension institutions;

the accounting year of both com panies ends on the same date;•

the contribution is recorded in the accounts of the contributing com pany as •well as in the accounts of the recipient company;

the transfer is not a capital invest ment and is not directly related to the •respective companies’ mutual business operations;

the contribution does not exceed the amount of the contributing com pany’s •profit from business ac tivities.

692.5.12 Change in a company’s form, mergers and divisions

2.5.12.1 Change in a company’s form

According to Finnish company law, a partnership may be transformed into another kind of a partnership as well as into a limited company. A limited company may not be transformed into a partnership.

In the transformation of the company’s form Finnish tax provisions are based on the principle of continuity in account ing. The value of investments, fixed assets, inventories and liabilities re mains unchanged and the change does not have any other direct or immediate tax consequences. The principle of conti-nuity prevails if the entity (i.e. a part nership) maintains its identity through the change into another com pany form (i.e. into a limited company). The decisive factor is that the ownership of the company is the same as before the change. Another precondition for maintaining identity is that all the company’s assets and liabilities are transferred unchanged.

Besides this most common alternative, these principles are applicable to sole proprietors, farmers, estates of deceased persons, partners (in connection with the dissolution of a general partnership or a limited partnership) and non-organ-ised partnerships (partnerships other than general or limited partnerships) when a new and usually more capital-intensive form of organisation is chosen.

2.5.12.2 Mergers and divisions etc.

As an EU Member State, Finland has harmonised its tax pro visions concerning cross-border mer gers, divisions, transfers of assets and exchanges of shares in accordance with the EC Merger Directive 90/434/EEC. These rules also apply to domestic transactions. With the exception of exchanges of shares, the same rules apply to corporate bodies other than limited companies, and the rules on mergers also apply to domestic business partnerships.

In a merger, by dissolving, one or more com panies transfer their assets and liabilities to another company, i.e. a re cipient company which, as a con si deration, issues new shares or transfers treasury shares (company’s own shares) to the share holders of the transferring company or companies.

In the case of mergers, following rules apply:

the transferring company is not dee med to be dissolved for the purposes 1. of taxation;

the expenses and costs of the trans ferring company are deducted from 2. within the recipient company as they would have been deducted in the trans ferring company; the maximum dep reciations (for the year of merger) of the recipient company are decreased by the amount of depreciations al-lowed in the taxation of the transferring company for that tax year;

70a loss resulting from a merger is not a deductible expense and a gain is not 3. chargeable income;

the recipient company and the trans ferring companies are treated as sepa-4. rate taxpayers until the merger is complete;

in the taxation of the shareholders of the transferring company, the ex-5. change of the shares in the transferring company for shares in the recipient company is not treated as a taxable event;

a cash compensation may be used as a consideration but it must not exceed 10 6. per cent of the nominal value of new shares issued by the recipient com pany or, in the absence of a nominal value, 10 per cent of the paid-in capital relating to the shares in the transferring company; the transaction is deemed to be a taxable event to the extent that cash compensation has been used;

the deductible acquisition cost of the new shares received as a consideration 7. by the shareholders of the transferring company is equal to the acquisition cost of the shares in the transferring com pany.

In a division, a company by dissolving transfers its assets and liabilities to two or more companies. The shareholders of the transferring company receive (in proportion to the ownership of shares in the transferring company) shares issued by the recipient companies or treasury shares (company’s own shares). The rules in items 1), 2), 4), 5) and 6) in the preceding paragraph also apply to divi-sions. The deductible acquisition cost of the new shares in a recipient company is equal to the net value of the property transferred to that recipient company.

In a transfer of assets, a company trans fers all its assets or the assets of one or more branches of its business activity and the corresponding liabilities to the company which continues the activity. The transferring company receives as a consideration new shares issued by the recipient company or own shares held by that com pany. In the taxation of the transferring company the book value of the acquisition costs of the transferred assets is taxable income only if the transfer has been realised by using the same book values as in the company accounts. The corresponding value is the deductible acquisition cost for the recipient company. Other costs are deducted as they were previously deducted by the transferring company. Reserves are deemed to be taxable income in the same way as they were taxable income for the transferring company. The deductible acquisition cost of the new shares received by the transferring company is the book value of the transferred assets minus the transferred debts and reserves.

The rules concerning mergers, divisions and transfers of assets also apply to the transferring company when the recipient company is resident in another EU Member State on condition that the transferred assets remain effectively connected with a permanent establish ment that the recipient company has in Finland. If this condition is not fulfilled or if the assets cease to be effectively

71con nected with such a permanent es tablishment, the market price of the assets becomes taxable income. The re serves transferred to a permanent es tablishment are taxable income for the tax year in which the permanent es tab lish ment ceases to exist. If the trans ferred assets and liabilities are connec ted with a permanent establishment that a domestic corporate body has in another EU Member State, the market price of the assets and the reserves deducted from the income of the permanent es tablishment are deemed to be taxable income of the transferring company. The tax that would have been paid for the same income in the state where the permanent establishment is situated is then deducted from the tax that is due on this income in Finland.

In the case an exchange of shares, a company acquires a sufficient number of shares in another company to give it the majority of the voting rights and as a consideration issues new shares or transfers treasury shares (company’s own shares) to the other company’s shareholders. For the use of cash compensation, see item 6) above. The exchange of shares is not treated as a taxable transac-tion except when a person receiving new shares becomes resident abroad under the provisions of Finnish national legis lation or a double taxation agreement within three years of the end of the tax year in which the exchange took place. The exempted amount is then taxable income for the tax year in which the per-son became resident abroad.

If it can be established that the main purpose of the transaction has been avoid or evade tax, the rules concerning mergers, divisions, transfers of assets and exchanges of shares do not apply.

When a company is being dissolved the market value of the assets is applied. The liquidation gain is tax exempt and the corresponding liquidation loss non-deductible, provided that the shares of the company liquidated would have qualified for the participation exemption.

2.5.13 Controlled foreign companies (CFCs)

According to the Act on the Taxation of Share holders in Controlled Foreign Com panies (1994) a resident share holder with a share in a controlled foreign company is liable to pay tax on his share in the CFC’s income under the cer-tain conditions.

2.5.13.1 Shareholders covered

The Act is applied to a CFC’s shareholders who are resident in Finland.

722.5.13.2 Controlled foreign company

The expression "controlled foreign company" covers

a foreign corporate body that1.

is under the control of persons resident in Finland; this is the case if one •or several such persons directly or indirectly own at least 50 per cent of the capital of or the voting rights in a CFC or they are entitled to at least 50 per cent of the yield of the net wealth of the CFC; and

has in its country of residence an actual rate of income tax which is less •than 3/5 of the tax rate of a corporate body resident in Finland;

a foreign company’s foreign permanent establishment2.

that would fulfil the conditions of the Act if it were an independent •entity,

is situated in a State different from the State where the company is situ-•ated, and

has not been taxed for its income in the State where the company is resi-•dent.

When the income is calculated for the purpose of estimating whether the actual rate of income taxation in the country of residence of the corporate body is less than 3/5 of the Finnish tax rate of a corporate body resident in Finland, dividend is not taken into account if it has been received by a CFC from another CFC and it has been distributed on the basis of the last-mentioned CFC’s profit that has been taken into account in Finland in estimating the rate of income tax of the last-mentioned CFC for any of the five years immediately preceding the distribution of dividend for any of the five years immediately preceding the distribution of dividend (such dividend is not included in the charge able income either).

The following entities are not deemed to be CFCs:

On the basis of the type of activity (subject to evidence on how the income 1. has accrued)

a) acorporate body whose income is mainly derived from industrial ac tivities, any other comparable pro duction activities or shipping busi-ness exercised in its country of residence;

b) a cor porate body whose income is mainly derived from sales and market-ing activities exercised in and mainly directed to its country of residence

73and directly serving a corporate body with industrial ac tivities, any other comparable pro duction activities or shipping business (in other words, activities mentioned in a) and;

c) a corporate body whose income is mainly derived from payments made by a corporate body of the same group, and the latter is resident in the same country as the former (the corporate body receiving the payments) and conducts there activities men tioned in a) or b);

2. On the basis of tax treaty status,

a corporate body resident in a State with which Finland has an agreement for the avoidance of double taxation of income in force if

the corporate body is considered to be resident of that treaty partner under •the agreement,

the agreement is applicable to the profits of the corporate body provided •that corporate bodies are in that State liable to pay for their profits a tax that doesn’t significantly deviate from the tax that corporate bodies must pay in Finland for their profits, and

the corporate body has not profited from the specific tax relief legislation •of that State.

The tax that corporate bodies in the treaty partner must pay for their prof-its deviates significantly from the tax that corporate bodies must pay in Fin-land for their profits if the corporate bodies are resident in a non-EU Member State and are there on the basis of existing tax legislation liable to pay to the State or its part a tax for their profits, the actual and total amount of which is on average less than ¾ of the actual tax paid by cor porate bodies in Finland for their profits.

Tax Treaty States where such a substantial deviation is deemed to exist are mentioned in a decree of the Ministry of Finance.

3. CFC provisions are not applied to foreign corporate bodies resident in an EEA Member State or in a treaty partner State referred to in 2) above, if:

a) EU Directive concerning mutual assistance by the competent authori-ties of the Member States in the field of direct taxation and taxation of insurance premiums (77/799/EEC) is applicable to that State or

b) an agreement on exchange of information in tax matters between author-ities has been concluded with that State and that agreement together with the internal legislation of the contracting States allows a sufficient exchange of information for the application of the Act on the Taxation of Shareholders in Controlled Foreign Companies;

74c) a further requirement is that the corporate body in question is actually

established in the State where it is resident and carries on actual economic activity there.

The requirement in c) is fulfilled if, taking into account the character of the activity:

the corporate body has at its disposal in its State of residence necessary 1. premises and assets for carrying on its activities;

the corporate body has at its disposal in its State of residence sufficient staff 2. with the authority to independently carry on its business; and

that staff independently decides upon the day-to-day activities of that cor-3. porate body.

2.5.13.3 Chargeable income, credits and losses

The chargeable income is the share in a CFC’s profits that corresponds to a taxpayer’s direct and foreign indirect ownership or position as a beneficiary and provided that the taxpayer alone or together with persons within the same sphere of interest holds at least 25 per cent of the capital of the CFC or as a beneficiary is entitled to at least 25 per cent of the yield of the net wealth of the CFC. Dividend is not included in the chargeable income if it has been received by a CFC from another CFC and it has been distributed on the basis of the last-mentioned CFC’s profit that has been taken into account in Finland in estimating the rate of income tax of the last-mentioned CFC for any of the five years immediately preceding the distribution of dividend (such dividend is also not taken into account when the income is calculated for the purpose of estimating whether the actual rate of income taxation in the country of resi-dence of a corporate body is less than 3/5 of the Finnish tax rate of a corporate body resident in Finland). Dividend or other profit distribution received by a shareholder is charge able only to the extent that it exceeds the amount that in the same year or five preceding years has been included in the chargeable income of the shareholder.

The share in the CFC’s profits is included in the source of income into which the shares of the CFC belong. The chargeable income keeps its original type of income in the taxation of the shareholder.

The shareholder’s share in the CFC’s loss is deducted from that share holder’s chargeable share in the profits of the same CFC during ten years following the year of loss as such profits accrue.

Credit is given for the State taxes paid by the CFC on the same income. If it is not possible to credit all the amount of taxes paid by the CFC, the uncredited amount is deducted from the taxpayer’s income which is taxed according to the Act on the Taxation of Share holders in Controlled Foreign Com panies in the

75next tax year. Act on the Elimination of International Double Taxation is applied to the unused credit. If the foreign CFC is resident of a State with which Finland has an agreement for the avoidance of double taxation of income in force, the taxes to be credited are those that would be credited according to the agreement, if the taxpayer had paid them. However, if the tax to be credited under this rule according to the agreement exceeds the amount actually paid by the CFC, the credit is limited to the amount actually paid by the CFC (matching credit or tax sparing credit is excluded). The credit cannot exceed the amount of Finnish taxes paid for the same income. Act on the Elimination of International Double Taxation is applied also to determining the amount of credit.

2.5.14 Taxation of real estate companies

The taxation of real estate companies is a special feature in the Finnish taxa-tion system.

A real estate company is defined as a limited company where more than 50 per cent of the total gross assets of the company consist of real property si tua-ted in Finland. The term "real property" has here and elsewhere in the tax law basically the same meaning for tax purposes as in general law respecting landed property. However, a building or an installation on a landlord’s real pro perty (by virtue of a contract of land-lea se) is also regarded as real prop erty if the owner-ship of the building or in stallation together with the right to occupy the ground can be transfer red to a third party without the consent of the landlord.These companies are divided into three categories:

a residential housing company is a limited company where more than 50 per •cent of the total area of the flats is reserved for shareholders as re sidential flats and in which every share separately, or jointly with certain other shares, entitles the shareholder to the enjoyment of a specified flat in the building owned by the company;

the second category includes limited companies where less than 50 per cent •of the total area of the flats is re served for the shareholders for re sidential purposes; the most com mon type is a company where more than 50 per cent is reserved for the share holders for other than residential purposes; the remaining part may be enjoyed by the company itself or reserved for the shareholders for residential purposes or it may also be partly used for these two pur poses;

the third category comprises com panies where there are one or several shares •which do not entitle share holders to the enjoyment of a spe cified flat in the building owned by the company; it is also possible that none of the shares entitles a share holder to any such enjoyment.

76These companies are taxed under the Income Tax Act (only exceptionally

under the Act on the Taxation of Business Profits and Income from Profes-sional Activities).

In practice the residential housing com panies do not pay tax. The purpose is only to provide residence to the share holders who pay all the costs of the com-pany through a monthly mainte n ance charge. Thus these companies usually do not yield taxable profit. They are also entitled to create a deductible residential house reserve if they should yield profit. In other real estate com panies profit is more common.

According to a decision of the Supreme Administrative Court of 1968, which dealt with the interpretation of Article 6 (income from immovable property) and Article 21 (income not expressly mentioned, i.e. other income) of a double taxation agreement which were drafted in complete conformity with Articles 6 and 21 of the 1963 OECD Draft Convention (the 1977 and 1992 OECD Model Conventions contain Articles which are in substance the same as the Articles 6 and 21 of the 1963 OECD Draft Convention), the shares in these companies were not deemed to be immovable property and the income from such shares (being income other than dividends) was taxed according to Article 21. These com panies are the principal means of owning real property used for residen-tial purposes, especially in densely populated areas. The decision of the Court implied, inter alia, that the right to tax the shareholder on income from letting a flat situated in the building owned by the company only belonged to the coun-try of residence of the share holder. In all its subsequent double tax ation agree-ments, Finland has included a paragraph where it reserves the right to tax the income from shares or other corporate rights in the above-mentioned compa-nies as income from real property. This principle is also applied to capital gains derived from the disposal of shares in real estate companies.

77

3 Prepayment of income taxes3.1 GeneralIncome taxes assessed (in practice) by local tax offices are typically due for payment at the end of the assessment year (the year follow ing the tax year) and at the begin ning of the year follow ing the assessment year. Through a system of advance tax payments, the bulk of the tax money is, however, collected dur-ing the tax year to which the taxes relate.

The prepayment tax rates and the estimated tax amounts are drawn up according to the latest assessment so as to match as closely as possible the tax-payer’s final taxes for a full tax year. The total final tax, when payable by the taxpayer, includes state income taxes, communal tax, church tax and a health insuran ce contribution. The rates and estimated tax amounts can be changed if it becomes obvious that they will not match the final taxes.

The present prepayment system is governed by the Prepayment Act (1996). The prepay ment system has two distinctive fea tures: on the one hand, withhol-ding from wages and salaries, certain indemnities, pensions, taxable social secu-rity benefits and certain types of interest, and, on the other hand, preassessment and payment of estimated tax amounts with regard to other kinds of income.

Withholding is the primary method of prepayment. Preassessment is used in the case of business profits, agricultural income and various other kinds of income.

The National Board of Taxes is entitled to exempt an income from prepay-ment.

In order to avoid the situation whereby an individual is forced to pay an accu mu lated total of taxes in the period following the end of the assessment he may make supplementary payments at his discretion. Such payments must in any case be made on 31 March of the assessment year at the latest. In order to totally avoid the interest on the accumulated total of taxed, the supplementary payment for the year 2008 must be paid on 2nd February at the latest. If the accu-mulated total is paid on 30th September at latest, it is deemed to be a supplemen-tary payment and it is treated in the same way as a such a payment.

As a part of the Nordic tax co-operation prepaid taxes can be transferred from one Nordic country to another where there is a deficit of prepayment (for instance as a consequence of employ ment in another Nordic country).

78Net wealth tax was no longer levied in 2006. The calculation of net wealth

of enterprises for various purposes and the valuation of real property for the purposes of real property taxation is done on the basis of the Act on Valuation of Assets for Taxation (2005).

3.2 Withholding and prepayment registerTax is withheld by all employers from wages and salaries paid to employees. The concept of wages and salaries in cludes:

wages and salaries of all kinds, fringe benefits, rewards, compensation, •be nefits and remuneration that are re ceived as a consequence of employ-ment relations;

meeting fees, personal lecture and seminar fees, remuneration on the basis •of membership of an ad minis trative body, managing director’s fees, the salary or wages of a partner in a partnership and remuneration for holding positions of trust.

Even though the payment is not deemed to be wages or salary, tax must be •withheld from:

remuneration paid in respect of work, a task or service done for another •person;

a sportsperson’s fee;•

remuneration for the use of, the right to use, or the sale of the right to use •the copyright of a literary, artistic or scientific work, any right based on a photograph, any patent, trademark, design or model, plan, secret formula or process, or for information con cern ing industrial, commer cial or scien -tific experience.

No withholding is, however, made from payments mentioned above, being other than wages or salary, if the recipient is registered in the prepayment reg-ister held by the regional tax offices. Anyone who runs a business, carries on farming or other income-generating activity is entitled to be registered under the condition that the remuneration is not a sportsperson’s fee, salary or wages according to the first list above in this section. Such a person is subject to pre-assessment (see 4.3).

Tax is also withheld, usually at the rate of 28 per cent, from profits distributed from domestic investment funds (unit trusts, mutual funds), from withdrawals of shares from employee investment funds and surpluses distri buted by such funds, from returns on zero-coupon certificates of deposit and zero-cou pon bonds and interest earnings on loans where the number of lenders is small, i.e. where the staff of an enterprise subscribes to a loan issued by the em ployer.

79The amount to be withheld is computed for each separate amount of wages

or salaries, whether paid in money or in kind. The value of wages or salaries in kind is determined according to values fixed by the National Board of Taxes. If an employ ee’s earnings include com pen sation for the use of his own motor vehicle or tools or compensation for other out lays, the income subject to with-holding is computed by reducing the earnings by an amount corres pond ing to the compensation.

Withholding tax on wages or salary received by an employee in respect of emplo yment which constitutes his principal occupation is deducted at a rate set separately for each individual.

Employers must pay the amounts with held at source to the account of the regional tax office not later than on the tenth day of the month following the withholding. The employer is res pon sible to the State for the amounts which have or should have been withheld. Pen sions are subject to with holding tax at a rate which is determined separately for each taxpayer.

3.3 PreassessmentThe preassessment of taxes on income not subject to withholding is carried out (in practice) by the local tax office. As sess ment is made on the basis of the tax payer’s income in the la test ordinary assessment according to the tax rates for the current tax year. The Na tional Board of Taxes decides whether the income estimates forming the basis for the preassessment should be adjusted. If similar reasons apply with regard to an individual taxpayer, an increase or re duction is made by the tax office.

The amount assessed is collected monthly in the case of corporate bodies. In other cases the number of instalments is two (for 170–500 euros), three, six or twelve (for more than 10,000 euros). If the taxpayer is dissatisfied with his preassess-ment, he may apply to the tax office for a new assessment.

3.4 Use of prepaid taxPrepayments withheld and assessed are credited against the taxpayer’s final taxes and only the difference remains to be paid. If the prepayments exceed the final taxes assessed, the excess amount is refunded to the taxpayer. In the case of spouses, a refund due to one spouse is credited against the tax due from the other spouse, when permission for this is specifically given in the tax return of the spouse entitled to the refund.

All prepayments, whether withheld or assessed, accrue to the State. Dur-ing the tax year, estimated instalments are paid from the State Treasury to the munici palities, the local com munities of the Evangelical-Lutheran and Ortho-dox Churches and the Social Insurance Institution. After the final taxes have been assessed, the balances due to the mu nicipalities, com munities and the Social Insurance Institution are paid.

80

81

4 Inheritance and gif t tax

Although there is actually only one tax which is based on the Inheritance and Gift Tax Act (1940), the tax has two clearly distinguishable tax objectives. For this reason, the taxation of in heri tances and bequests on the one hand, and the taxation of gifts, on the other, are treated separately below and the two names for the tax are used accordingly.

Inheritance tax and gift tax are imposed solely by the State.For double taxation agreements on in heritances and gifts, see 5.3.2.

4.1 Rates of inheritance and gift tax 2009

Rates of inheritance and gift tax are determined on the basis of two classes of relationship between the bene ficiary (the donee) and the deceased (the donor).

Tax class I: Spouse, direct heir in ascending or descending line, spouses’ direct heir in descending line and fiancé(e) receiving a certain allowance on the basis of Code of Inheritance). The concept of direct heir in ascending or descending line includes persons in adoption relationships and foster children in certain cases. Class I rates also apply if the provisions of the Income Tax Act concerning spouses are applicable for the year of death to the deceased and an individual who had lived with the deceased in free union, in other words class I rates apply to spouses who previously have been married to each other or who have (or have had) a child together.

82Tax class II: All other cases (relatives or non-relatives).

TABLE 2 a). Rates of inheritance tax for class I:

Taxable inheritance(euro)

Basic tax amount(euro)

Rate withinbrackets (per cent)

20 000–40 000 40 000–60 00060 000–

1001 5003 500

7 10 13

TABLE 2 b). Rates of inheritance tax for class II

Taxable inheritance(euro)

Basic tax amount(euro)

Rate withinbrackets (per cent)

20 000–40 000 40 000–60 00060 000–

1004 1009 300

20 26 32

TABLE 2 c). Rates of gift tax for class I

Taxable gift(euro)

Basic tax amount(euro)

Rate withinbrackets (per cent)

4 000 - 17 00017 000 - 50 00050 000–

1001 0104 310

7 1013

TABLE 2 d). Rates of gift tax for class II

Taxable gift(euro)

Basic tax amount(euro)

Rate withinbrackets (per cent)

4 000 - 17 00017 000 - 50 00050 000–

1002 700

11 280

202632

4.2 Residence

For the purposes of the Inheritance and Gift Tax Act a person is deemed to be resident in Finland if he has his main abode in Finland.

834.3 Inheritance tax

4.3.1 Scope of application

An inheritance tax is levied on the individual share of each beneficiary, and not on the estate of the deceased as a whole. Inheritance tax is levied on the following property received as an in heritance or a bequest:

any property, if the deceased or the person who receives the property as an 1. inheritance or a bequest was re sident in Finland at the time of death;

real property situated in Finland and shares or other rights in a corporate 2. body where more than 50 per cent of the total gross assets of that corporate body consist of real property situated in Finland.

Insurance claims paid out to a bene ficiary or estate under a personal in surance scheme in the event of the death of the benefactor as well as any similar eco-nomic subsidy paid by the Govern ment, a municipality or any other statutory body or a pension institution, are subject to inheritance tax only if they are not subject to income tax and the benefit or subsidy of a beneficiary or heir for a single death exceeds 35,000 euros. Half of the total amount of such claims or economic subsidies and amounts up to 35,000 euros are tax exempt for widow-ers and widows.

No inheritance tax is levied on the value of a right to annual income or on the value of a usufruct. Instead, the annual value of such rights is included when computing the beneficiary’s income for income tax purposes during all the tax years in which he is entitled to such income.

No inheri tance tax is payable when, on being dissolved, the property of an association is transferred in accordance with its articles of association.

If the inheritance tax should be levied on the same property on the basis of two or more deaths which have occurred within two years, the inheritance tax is levied only once and on the basis of the most remote relationship.

4.3.2 Credit for foreign inheritance tax

To avoid double taxation, the tax paid on an inheritance by a person resi-dent in Finland to a foreign state on property mentioned in item 1) in 4.3.1 is credited against the inheritance tax due in Finland on the same proper ty. The maxi mum credit is the lesser of either the amount of foreign inheritance tax or an amount based on the following calcu lation (ordinary credit):

value of foreign property x Finnish inheritance tax value of total property (incl. foreign property)

844.3.3 Exempt persons

The following persons are exempt from inheritance tax when they receive an inheritance or a bequest:

the State and its institutions, munici palities, joint municipal authorities, 1. religious communities and non-pro fit-making organisations;

persons serving in Finland at foreign diplomatic missions, other similar rep-2. resentations or consular posts hea ded by career consular officers and persons serving in Finland as employees of the United Nations, its specialised agen-cies or the Intern ational Atomic Energy Association as well as members of their families and their private servants who are not Finnish nationals; how-ever these persons are liable to pay inheritance tax on real property situated in Finland and shares or other rights in a corporate body where more than 50 per cent of the total gross assets of the company consist of real property situated in Finland (i.e. item 2 in 4.3.1).

No inheritance tax is payable when a widower or widow is entitled by law to retain the estate of the deceased spouse in his or her possession undistributed.

4.3.4 Valuation and deductions

The basis of inheritance tax is the current value of the property at the moment when the liability to pay inheritance tax begun (at the moment of death). The current value means the probable alienation price.

The value of a gift that must be taken into account in a distribution of an inheritance is inclu ded in the value subject to in heritance tax. The value of any other gift received during the last three years before the death of the benefac-tor is also included in the value subject to inheritance tax under the condition that it is not gift tax exempted:

as ordinary household effects intended for the beneficiary’s (or his family’s) •personal use and with a maximum value of 4,000 euros, or

as an amount used by a person for another person’s (beneficiary’s) educa-•tion or maintenance in such a way that that other person does not have the possibility to use the donated amount for other purposes.

Previously paid gift tax is deducted from inheri tance tax in these cases. Deduction is given also for transfer tax that has been paid when registration of title to a real property has been sought and that has not been earlier deducted from gift tax. The part of gift tax that exceeds inheritance tax is not refunded.

Deductions are allowed for all debts, including taxes relating to the lifetime of the deceased (but excluding in herit ance tax) as well as funeral and tomb-

85stone costs and expenses incurred in drawing up an estate inventory, up to rea-sonable amounts. Expenses incurred in distributing estates are not allowed as deductions.

Moreover, the spouse, or a person to whom the provisions of the Income Tax Act concerning spouses are applicable for the year of death (see 2.2.3.1) is enti-tled to a deduction of 60,000 euros from the chargeable share of the inheritance (spouse allowance). Heirs in direct descending line (including person adoption relation) who were both under 18 years of age and next entitled to inherit the deceased person at the moment of the person’s death are entitled to a de duc-tion of 40,000 euros (minority allowance). If the value of a heir’s share of estate or the same value after deducting spouse allowance and minority allowance is less than 20,000 euros it is exempt from tax. Inheritance tax is not levied on the ordinary household effects used by the deceased or his family for that part which does not exceed 4,000 euros.

4.4 Gift taxA gift tax is levied on the following property received as a gift (for the gift tax rates see 4.1):

any property, if the donor or the be neficiary was resident in Finland at the 1. time when the gift was made;

real property situated in Finland and shares or other rights in a corporate 2. body where more than 50 per cent of the total gross assets of that corporate body consist of real property situated in Finland.

Insurance claims which are paid without consideration under a beneficiary clause and which are not subject to income tax are also treated as gifts. How-ever, they are exempt if their total amount over three years does not exceed 8,500 euros.

No gift tax is levied on ordinary household effects intended for the benefici-ary’s (or his family’s) personal use and with a maximum value of 4,000 euros, or on amounts used by a person for another person’s (beneficiary’s) education or maintenance where that other person does not have the possibility to use the donated amount for other purposes and on other gifts whose value is less than 4,000 euros. If a person receives such gifts from the same donor within a period of three years, the gifts are aggregated for the purpose of computing the 4,000-euro limit and the gift tax liability. If a person has received one or more taxable gifts from the same donor within three years before his tax liability has begun, these gifts must be taken into account when the tax is calculated. The gift tax paid earlier is credited in such cases.

86The gift tax is similar to the inheritance tax in the following particulars:

credit for foreign gift tax (4.3.2);•

exempt persons mentioned in items 1) and 2) in 4.3.3.•

class I gift tax rates are applied if the provisions of the Income Tax Act con-•cerning spouses (see 4.1) are applicable to the donor and the donee;

the valuation of property (4.3.4).•

The liability to pay gift tax begins when the beneficiary takes possession of the gift.

In cases where the financial con si de ration in a contract of sale or exchange does not exceed three-quarters of the current price of the property sold or exchan ged, the difference between the current price and the consideration is regarded as a gift.

4.5 Provisions concerning the transfer of a farm or a business

4.5.1 General rule

A taxpayer may demand that part of the inheritance or gift tax is not charged under the following conditions (change of generation rules):

the chargeable inheri tance or gift con tains a farm or a business or a part 1. of them (including at least 10 per cent of shares or rights giving title to a farm or business);

the descendant or donee continues to run a farm or a business on such a 2. farm or in such a business unit using the assets which he has received as an inheritance or gift;

that part of the tax corresponding to the above-mentioned property is 3. more than 850 euros.

4.5.2 Calculation principles

In order to calculate the non-charged part of tax the following amount of tax is deducted from the ordinary tax (levied according to Inheritance and Gift Tax Act): the amount that would result when the tax is levied on the basis of the share of inheritance or gift if the land of the farm and corresponding enti-tlement to CAP (Common Agricultural Policy of EU) farm subsidy, buildings, structures, machines, equipment and appliances and debts linked to them as

87well as commercial property belonging to a business (other than a farm) are valued at 40 per cent of the value determined on the basis of Act on the Valu-ation of Assets for Taxation (Chapter 3 and 4) in income taxation of the year preceding the year when the tax liability begun. The commercial property of a limited company is valued at 40 per cent of the amount calculated on the basis Articles 4 and 5 of the Act on the Valuation of Assets for Taxation. In the application of these rules farm land and simultaneously alienated entitle-ment to CAP farm subsidy corresponding to that land are valued at 40 per cent of the farm land’s value according to Act on the Valuation of Assets for Taxation.

The assets that are not included in net wealth are valued as follows:

forests which are a part of a farm are valued at 40 per cent of the amount deter-•mined according to Act on the Valuation of Assets for Taxation (Article 7);

residential buildings of a farm and building sites for processing buildings •of forestry are valued at 40 per cent of the amount determined according to Act on the Valuation of Assets for Taxation (Chapter 5);

processing buildings, machines and appliances of forestry are valued at 40 •per cent of the undepreciated balance for taxation purposes;

other assets are valued at 40 per cent of their current value.•

The difference calculated through this deduction procedure or if the differ-ence is more than the part of tax that exceeds the amount of 850 euros (see item 3) in 4.5.1) is then left uncharged.

If a financial consideration has been used in a transfer of a farm, a business or a part of them (see item 2) above in 4.5.1) and the consideration is more than 50 per cent of the current value, no gift tax is charged.

4.5.3 Subsequent disposal of the property and interest relief

The non-charged tax and an additional 20 per cent is imposed if the taxpayer disposes of the main part of the farm or business or part of them before five years have elapsed from the date of the assessment.

In addition, an interest-free extension of the period of payment may be granted.

88

89

5 International aspects of income taxation

5.1 ResidentsResident individuals as well as resident corporate bodies and partnerships (for the usage of the term "resident", see 2.2.2) are liable to state income taxes and communal tax on their worldwide income (inclu ding income from foreign invest ments). A special tax treat ment is available only for dividend received from abroad by resident corporate bodies (intercompany exemption, see 2.5.3.3). There are no special incentives for investments in developing coun-tries (besides Tax Sparing provisions in some older Finnish tax treaties).

Taxable income from foreign sources is determined accord ing to the same rules that apply to domestic income. The deduction of foreign direct taxes as expenses is not allowed, but on certain conditions tax credit is granted for such taxes (see 5.3.1). The rates of tax apply regardless of whether the tax base includes foreign source income. Finland’s double taxation agreements may restrict the right to tax income from foreign sources (see 5.3.2). There is one significant exception provided under domestic law; the remuneration that a resident indi-vidual derives from em ploy ment abroad lasting at least six months and meeting certain condi tions is partly exempt (the "six-month rule", see 2.4.2 where other exemptions con cerning income from abroad are also listed).

5.2 Non-residents5.2.1 Source rules

Non-residents are taxed in state and municipal income taxation on their income from invest ments in Finland and on other income derived from Finland.

The following items, inter alia, are considered as income derived from Fin-land ("Finnish source income"):

income from real property situated in Finland;•

income from letting a flat held by virtue of shares in a Finnish residen tial •housing company;

capital gains on the sale of real pro perty situated in Finland and capital •gains on the sale of shares in a Finnish residential housing company or in

90any other company, if more than half of the company’s total assets consist of real property situated in Finland;

profits from a business, agriculture and forestry carried on in Finland and •income from professional activities performed in Finland;

wages, salaries and pensions paid by the State, a Finnish municipality or any •other domestic statutory body, including pensions based on work, duty or service for the State or such municipality or body as well as pen sions which are based on pension or traffic insurance taken out in Finland;

wages and salaries derived in respect of employment exercised solely or •mainly in Finland for an employer in the private sector who is located in Finland, as well as pensions paid in consideration of such em ploy ment;

wages and salaries paid by a foreign employer in respect of employment exer-•cised in Finland where a foreign hirer has hired out an employee to a per-son (orderer, commissioner) who is in Finland and who has the work done (hiring out of labour);

remuneration paid on the basis of membership of a board of directors or •another similar organ of a Finnish corporate body or partnership;

income arising from the personal activities of a sportsperson or artiste if •these activities are exercised in Finland or on board a Finnish vessel;

dividends from Finnish limited com panies and co-operative so cieties and •shares in the income of Finnish part nerships;

interest in cases where the debtor is a resident individual or a Finnish cor-•po rate body, partnership or un distri buted estate of a deceased person;

royalties in cases where the property or right in respect of which the royal-•ties are paid is used in a business carried on in Finland or where the person liable to pay the royalties is a resident individual or a Finnish cor porate body, partnership or undistri buted estate of a deceased person;

distributions by investment funds and employee investment funds;•

a non-resident sleeping partner in a Finnish limited partnership is liable to •tax for only that part of his share in the partnership’s income which would have been taxable income when derived directly from Finland by a non-resident; the partnership must be engaged solely in the business of venture capital investing (according to its articles of partnership and de facto) and an agreement for the avoidance of double taxation between Finland and the state of residence of the partner must be applicable to that partner; if the tax-able income of the partner exceeds the partner’s share in the partnership’s income the exceeding part is included in the taxable income during the next 10 years as soon as such share in the income accumulates.

915.2.2 Taxation of non-residents

Income taxation of non-residents is governed by the Act on the Taxation of Non-residents’ Income (1978). Two different methods are used for taxing income derived by non-residents: final withholding and taxation through assessment. In the former the different income taxes imposed on residents are replaced by a single tax at source (5.2.2.1 Final withholding tax) withheld by the payer of the dividends, etc. Items of income derived from Finland other than those mentioned below, e.g. business profits are taxed on an assessment basis according to the rules applied to residents (5.2.2.3 Taxation on the basis of assessment) and at the ordinary rates of tax.

5.2.2.1 Final withholding tax

Income subject to final withholding

Final withholding is applied to divi dend, interest, royalty, salary and wages, distri bution by employee investment funds and other payment that is sub-ject to national withholding (ordinary national withholding system, PAYE) according to the Prepayment Act. Final withholding is also applied to remu-neration derived by an artist or a sportsperson (and whether the remuneration is salary or not or whether it is paid to the artist or sportsperson or to some-body else).

Dividends, interest or royalties derived by and attributable to foreign enter-prises’ Finnish per manent establish ments are taxed through assessment.

The provisions concerning dividend are also applied to interest paid on the participation capital of a co-operative society, distributions by investment funds (mutual funds, unit trusts), substitute dividend, hidden distribution of dividend and adjustments on the basis of transfer pricing.

Salary and wages are defined as remuneration that is meant in Article 13 of the Prepayment Act. They include remuneration for the costs of stay and remu-neration paid for costs caused by the work (fringe benefits are valued according to the Income Tax Act). Salary and wages do not cover remuneration for travel tickets, freight charges and other similar payments (receipt given by the carrier is required) which are obligatory in travelling, and remuneration for accommoda-tion (receipt is required). However, such remuneration is included in the salary or wages if it is not remuneration for expenses caused by the work. Salary and wages do not cover daily allowance (subject to the confirmed maximum limit of the Finnish daily allowance) and certain remuneration paid to persons whose workplace is abroad and who are at the service of the State of Finland.

92Exemptions

The following income is exempt from withholding tax (zero rate):

interest derived by non-residents on Finnish bonds, debentures and other •mass instruments of debt, loans from abroad not con sidered as capital invest-ment assimilated to the debtor’s own capital, deposits in banks or other finan-cial institutions and non-resi dent owned foreign trade credit accounts (on the basis of Income Tax Act, 2.2.1);

interest within the scope of application of the EU Savings Directive (2003/48/•EC);

interest and royalties when the beneficial owner of interest or royalty is a •company of another EU Member State or a permanent establishment situ-ated in another Member State of a company of a Member State; the exemp-tion is applied only if the company which is the payer, or the company whose permanent establishment is treated as the payer, of interest or royalties, is an associated company of the company which is the beneficial owner, or whose permanent establishment is treated as the beneficial owner, of the interest or royalties (the EU Interest and Royalty Directive 2003/49/EC);

dividend paid to a non-resident corporate body (for corporate body, see •2.2.4) that is similar to a corporate body mentioned in Article 33 d 4 of the Income Tax Act or Article 6 a of the Act on the Taxation of Business Profits and Income from Professional Activities on the condition that the dividend would be exempt according to these provisions when paid to domestic corpo-rate body; the exemption also applies to interest paid (and received by such a body) on various shares of the participation capital of a co-operative soci-ety, profit paid on the basic reserves of a savings bank, interest paid on the investment in the additional reserves of a savings bank and interest paid on the guarantee capital of a mutual insurance company or insurance associa-tion; the corporate body must be resident inside the EEA and the Directive concerning mutual assistance by the competent authorities of the EU Mem-ber States (listed in Appendix 8) in the field of direct taxation and taxation of insurance premiums (77/799/EEC) or an agreement on mutual assistance and exchange of information in tax matters on EEA must be applicable to the State where the recipient of dividend is resident; a further requirement is that according to evidence provided by the recipient the withholding tax cannot in fact be entirely credited in the recipient’s State of residence on the basis of a Double Taxation Agreement between that State and Finland;

dividend paid to a company resident in an EU Member State if the company •owns directly at least 10 per cent of the capital of the distributing company; this rule applies only if the recipient of the dividend is a company mentioned in Article 2 of the EU Parent–Subsidiary Directive (90/435/EEC; for details,

93see 2.5.3.3); also a lower than usual tax rate is applied to dividend, see With-holding tax rates item 3) here below.

non-salary remuneration (referred to in Article 25 of Prepayment Act) is tax •exempt if the recipient of the remuneration:

presents to the payer his tax card, which denies the withholding; ▶

presents to the payer other evidence on the applicability of an inter- ▶national agreement hindering the withholding; this provision is not applied to work done only or mainly in Finland and relating to build-ing (houses, excavation, water engineering, other construction), instal-lation and assembly, shipbuilding, transport and cleaning, nursing and provision of care; or

is registered in the prepayment register (referred to in Article 25 of ▶Prepayment Act).

Withholding tax rates

Unless lower rates of tax are provided for in a double taxation agreement, the rates of with holding tax (which is accounted for to the State) are as follows:

5 per cent for salary and wages, distribution from an employee investment 1. fund, non-salary re mu ne ration paid for work done or service provided by an individual (referred to in Article 25 of Prepayment Act), disguised dividend as well as any other payment, which according to the Income Tax Act is taxed as earned income; a 510 euros monthly or a 17 euros daily deduction (the maximum being the amount of income) is made from the total amount of all income subject to 35 per cent rate except distributions from employee investment funds and directors’ fees; in order to get the deduction a tax card must be presented to the payer of the income;

28 per cent for dividend (excluding disguised dividend), interest (exempt, see 2. 2.2.1) and roy alty (royalty for cinematograph films is taxed in assessment) as well as insurance compensation and any other payment, which according to the Income Tax Act is taxed as investment income;

19.5 per cent for dividend if the recipient is a non-resident corporate body 3. (see 2.2.4) and:

a) the recipient’s shares in the distributing (Finnish) company are part of the recipient’s investment assets (only financial, insurance or pension institutions can have such shares); and

b) the recipient is not a company referred to in the EU Parent–Subsidiary Directive, which owns directly at least 10 per cent of the capital of the distributing company at the time of distribution; and

94c) the distributing company is a publicly listed company referred to in

Article 33 a 2 of Income Tax Act; and

d) the recipient company is a non-listed company which does not own directly at least 10 per cent of the share capital of the distributing company at the time of distribution.

19 per cent for income from selling of timber; however, the rate is (temporarily) 4. 0, 10, 10 and 15 per cent if the selling concerns cases that are described on page # and that fulfil the criteria mentioned there;

15 per cent for a remuneration paid on the basis of the activities of a 5. sportsperson or artiste (if the remuneration is paid to a foreign corporate body or a non-resident person, only that corporate body or person is deemed to be liable to tax).

13 per cent for a non-salary re mu ne ration (other than in 5) above) paid for work 6. done or service provided by a corporate body, partnership or joint interest.

The tax is always computed on the gross amount of the income in the case of di vidends, interest, royalties and pen sions.

Tax must be withheld when the income is paid to the recipient or to his account.

5.2.2.2 Taxation in assessment procedure

Income subject to assessment procedure includes:

Income other than that subject to withholding and mentioned in 5.2.2.1 1. Final withholding tax (Income subject to final withholding);

Pension (including annuities); the rule covers all types of pensions and both 2. pensions taxed as earned income (e.g. employment pensions) and pensions taxed as investment income (e.g. pensions based on voluntary pension insurances and benefits from life insurance policies);

Dividend paid to an individual resident in a EEA Member State (see Appendix 3. 8), on the individual’s demand, if:

a) Directive concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation and taxation of insurance premiums (77/799/EEC) or an agreement on mutual assistance and exchange of information in tax matters on the EEA is applicable to the State where the recipient of dividend is resident; and

b) the withholding tax on dividend cannot in fact be entirely credited in the recipient’s State of residence on the basis of a Double Taxation Agreement between that State and Finland; the taxpayer has to present

95to the Tax Office a certificate (given by his State of residence) stating that the withholding tax is not credited in the recipient’s State of residence.

Only dividend paid by domestic companies is taken into account when the tax-exempt amounts in other parts of the tax legislation are calculated.

Also other earned income (e.g. salary or wages) income received by a non-resident 4. taxpayer who is resident in an EEA Member State if his total earned income (e.g. pension and salary) less natural deductions derived by him from Finland in a tax year is at least 75 per cent of the total earned income less natural deductions derived by him from Finland and elsewhere. The taxpayer has to claim the use of assessment procedure (optional assessment procedure). The taxpayer has to present to the Tax Office a certificate (given by his State of residence) stating the income derived from elsewhere and their natural deductions.

Also other earned income received by a non-resident residence permit holder 5. referred to in Council Directive 2005/71/EC on a specific procedure for admitting third-country nationals for the purposes of scientific research if the earned income less natural deductions derived by the taxpayer from Finland in a tax year is at least 75 per cent of the total earned income less natural deductions derived by the taxpayer from Finland and elsewhere. The taxpayer has to claim the use of assessment procedure (optional assessment procedure).

For the purposes of 4) and 5) earned income received from Finland includes income received by non-residents employed on board Finnish ships or aircraft, that is to say wage income derived from work done on board and work done temporarily elsewhere for the ship or aircraft by the employer’s order, pension income which is directly or indirectly based on such wage income. Foreign ships and aircraft leased with only a minor crew or without any crew, bare boat leasing, by a Finnish employer are considered to be Finnish for tax purposes.

Income, which Finland is not entitled to tax under an international agree-ment, is not included in income received from Finland.

Dividend is not taken into account as earned income.Earned income less natural deductions received by a non-resident taxpayer

from elsewhere includes salary, wages and pensions as well as payments (less their natural deduction) based on social security, which are taxable income in the taxpayer’s State of residence.

If a taxpayer has been non-resident for only a part of the tax year (has been resident in Finland for the rest of that tax year, e.g. has moved abroad during the tax year), all the earned income received by him from Finland in that tax year is taken into account.

96Remuneration for the use or the right to use motion-picture film.6.

Income received from Finland includes in 1–6 only income that Finland is entitled to tax under an international agreement and that is taxed under the Act on Assessment Procedure.

If a non-resident taxpayer has carried on business (or practised a profession) through a permanent establishment situated in Finland also income subject to withholding is taxed in the assessment procedure if the income is attributable to the permanent establishment.

Taxable income in State taxation is taxed according to the ordinary progres-sive tax scale. All the deductions of the Income Tax Act are granted. A taxpayer who is non-resident during the whole tax year must pay tax on income taxable in communal taxation according the average of all municipal income tax rates of the preceding tax year. The whole tax goes to the State. A taxpayer who has been resident in Finland for part of a tax year must pay tax on income taxable in communal taxation according to the rate of the municipality where he is resi-dent (and the tax goes to the municipality).

In the case of income taxed as investment income the ordinary 28 per cent State income tax on investment income is levied.

A non-resident corporate body must pay 26 per cent corporate income tax for income derived from Finland other than income subject to withholding. If a non-resident corporate body has carried on business through a permanent establishment located in Finland, it must pay 26 per cent corporate income tax also for income subject to withholding.

Non-resident pensioners have to declare their income (a prefilled tax return will be widely used). Pensions are subject to the same prepayment procedure that is used in the case of resident taxpayers (PAYE, pay as you earn).

The income for which the withholding rate is 35 per cent (salary and wages, non-salary re mu ne ration referred to in Article 25 of Prepayment Act and paid for work done or service provided by an individual, disguised dividend as well as any other payment, which according to the Income Tax Act is taxed as earned income ) and which is later taxed in assessment procedure is first subjected to the ordinary withholding procedure. The rate is 35 per cent and a monthly/daily deduction of 510/17 € is granted. This tax is then deducted from the tax calcu-lated in assessment procedure.

When the withholding tax is levied, provisions of international agreements are followed if the recipient of the income before the payment of the income presents to the payer documentation concerning his place of residence and other conditions for applying the agreement. The recipient may present his (source) tax card or tell his name, date of birth or any other identifying information and his address in his State of residence. If such documentation is presented after the payment the excessive amount of tax has to be adjusted.

97However, in the case of dividend paid on a share registered in the nomi-

nee register the withholding tax is always levied at the rate of 15 per cent, if the payer has carefully enough ascertained that the provisions of a Double Taxa-tion Agreement apply to the recipient of the dividend. If Finland according to such an agreement is entitled to levy a withholding tax exceeding 15 per cent, withholding tax is levied accordingly.

A contract between the account operator or its agent and the foreign admin-istrator of property on safekeeping a share registered in the nominee registry is deemed to show that the applicability of provisions of a Double Taxation Agreement has been ascertained carefully enough. According to the contract the administrator shall:

for the payment of the dividend announce the State of residence of the 1. ultimate recipient of the dividend and warrant, that the provisions concerning dividend in the Double Taxation Agreement between Finland and that State apply to the recipient of the dividend;

undertake to announce without delay to the account operator or its agent 2. any changes in the circumstances mentioned in 1); and

undertake to announce on a request the recipient’s name, date of birth, any 3. other identifying information and address in the State of residence and to supply a certificate concerning the recipient’s State of residence for taxation purposes.

Moreover, the foreign administrator of property has to be resident in a State with which Finland has a DTA, and there has to be, at the time of distribution, an entry concerning the administrator in question in the register of foreign administrators of property held by the tax administration.

The account operator or its agent shall on a request provide the issuer of the share registered in the nominee register the contract mentioned above at least to the extent that the contract contains information mentioned in 1)–3) above.

An entry into the register of foreign administrators of property is made upon application by the administrator. The applicant shall guarantee that its contracts on safekeeping shares registered in the nominee registry fulfil the conditions mentioned above. If substantial conditions of such a contract or the obligation to provide information are not followed, removal from the registry or rejection of an application are possible.

If the payer, at the time of giving an annual withholding report, has not information on the recipient of the dividend the information to given in the report is the information on the foreign administrator of property. However, the State of residence to be reported is the recipient’s State of residence. Moreo-ver, information on whether the ownership of the shares for which dividend is paid is registered in the nominee register and whether the share is held on one’s own behalf or on behalf of another person.

985.2.2.3 Withholding tax for foreign wage earners with special expertise

Under the Act on Withholding Tax for Foreign Wage Earners with Special Expertise (1995) a with hold ing tax of 35 per cent is levied instead of State income tax on earned income and communal tax. The Act is applied to sal-ary received after 1st January 1996 if the salary is paid for work done in 2011 at latest.

The withholding tax is applied to foreign employees under the following con ditions:

the individual becomes resident in Fin land at the beginning of the period 1. of employment to which the Act applies;

the pecuniary salary for this em ployment is at least 5,800 euros a month 2. during the total period of employment to which the Act applies;

his tasks require special expertise;3.

he is not a Finnish national and he has not been resident in Finland in the 4. five years preceding the year in which this employment began.

If the individual works as a teacher in a Finnish university or other establish-ment for higher education or if he carries on scientific research for the pub-lic good (and not for private gain), the con ditions set out in items 2) and 3) do not apply.

A taxpayer is deemed to be a foreign expert for a maximum of 48 months cal culated from the beginning of the period of the employment to which the Act applies and as long as the employment is not interrupted. The tax basis is the salary and it is the recipient of income who is liable to the tax.

Under the Act a foreign expert must file an application within 90 days of taking up the em ploy ment. If the conditions for the with holding have not been fulfilled, ordinary assessment is applied to the total period of em ploy ment and the withheld tax is set off against the tax withheld.

In the taxation of other earned income, the income subject to withholding tax is added to the other earned income. Allowances which are deducted after deducting expenses incurred in ac quir ing and maintaining earned income are then deducted from this total amount. The income tax is then calcu lated on the basis of the subsequent total amount. That part of the tax corresponding to the ratio between other earned income and this subsequent total amount is deemed to be tax on other earned income.

If a foreign employee is liable to pay com munal tax to a municipality of the Pro vince of Åland the tax rate is 17.5 per cent instead of 35.

The health insurance contribution is levied on residents only.A non-resident is registered in the pre pay ment register (see 4.2) only if the

non-resident has a permanent establish ment in Finland.

99Capital gains or other one-off sources of income may be assessed at any time

outside the regular assessment period upon application by the taxpayer and on the basis of tax return filed.

5.3 Arrangements for avoiding double taxation

5.3.1 Act on Elimination of International Double Taxation

5.3.1.1 General

The Act on Elimination of International Double Taxation (1995) is a general law which is applied both in the unilateral elimination of double taxation and eli mi nation under a double taxation agree ment.

The Act applies to State income taxes, communal tax, church tax and cor-porate income tax.

5.3.1.2 Credit method

The primary method used is the credit method ("ordinary credit"). In this method, credit is granted for taxes which have been paid for the same income and over the same time period and the credit is given for taxes paid to a for-eign state. Other taxes paid in a foreign state are credited only on the basis of a separate rule as part of an international agree ment. Credit is granted in Fin-land against taxes payable for the same income on a pro rata basis.

The maximum credit is the lesser of either the amount of the foreign tax or an amount equal to the Finnish tax payable on the income from a foreign state. This maximum is calculated country-by-country and source-by-source. In the case of an individual or an undistributed estate, the credit is calculated by tak-ing into account the type of income (earned income or in vestment income). Income is defined as the income left after deducting the ex penses incurred in acquiring and main tain ing chargeable income. When cal culating the maxi-mum credit, only in come which is subject to tax in Finland and which, in a foreign state, is subject to a tax that can be credited under the Act is deemed to be derived from foreign state.

As an exception to the maximum credit rule credit for interest governed by EU Savings Directive may be higher than the Finnish tax payable on that inter-est. In this case the amount exceeding the Finnish tax may be deducted from state income tax on other income for the same tax year and only after that the exceeding amount is refunded.

If not all the tax paid in a foreign state can be credited, the amount of tax which remains uncredited is deducted in the following tax year from the tax on income derived from the same state and from the same source of income, tak-ing into account the type of income. Any unused credit for foreign tax can be

100deducted in the following year only to the extent that the maximum of credit in the following year exceeds the amount of taxes to be credited in that year. The deduction is made only upon application by the taxpayer.

Dividend is in most cases only partly taxable in the current dividend taxa-tion. However, credit for foreign tax is granted for the total amount of such tax and none of the foreign tax is deemed to have been withheld from a tax-exempt part of dividend.

5.3.1.3 Exemption method

Income from a foreign state for which Finland, as part of an international agreement, has given up its right to tax, is considered chargeable income for an individual, partnership or undistributed estate. That part which corre-sponds to the ratio between the exempted income and the total income in that source of income, taking into account the type of income, is deducted from the tax on the taxpayer’s income ("exemption with progression"). In calcu-lating the amount of the income from a foreign state, the ex penses incurred in acquiring and main taining income are deducted. Ex penses and interest in excess of the in come from a foreign state are not de ductible, even if they would be de ductible under the Income Tax Act, the Act on the Taxation of Farm Income or the Act on the Taxation of Business Profits and Income from Pro-fessional Activities. Deduction from tax on in come is made in proportion to the amounts of different taxes.

In the case of a corporate body, the income from a foreign state for which Finland, as part of an international agreement, has given up its right to tax is not included in the chargeable income. Expenses and interest incurred in ac quiring and maintaining exempt income are not deductible even though they would be deductible under the Income Tax Act, the Act on the Taxation of Farm Income or the Act on the Taxation of Business Profits and Income from Professional Activities. However, ex penses and interest relating to tax exempt dividends are always deductible.

5.3.1.4 Procedure

The taxpayer has to claim the credit for foreign taxes by making an applica-tion to the regional tax office. The taxpayer should include the evidence nec-essary for the calculation of the tax credit, e.g. the amount of foreign tax, the basis on which the tax is paid, proof that the tax is final and that it has indeed been paid. If the taxpayer cannot present all this information but has shown that the conditions for granting a tax credit exist, the credit can be granted up to a reason able amount.

The taxpayer has to claim the tax credit before the end of fifth year calcu-lated from the beginning of the year following the assessment year.

1015.3.2 Double taxation agreements

Finland’s network of comprehensive double taxation agreements in the area of income and capital taxes comprises the agreements with the following states (in force as on 31st December 2008):

Argentina (1994), Armenia (2007), Australia (2007), Austria (2000), Azerbaid-zhan (2006) Barbados (1989), Belarus (2007; applied from the beginning of 2009), Belgium (1976), Bosnia-Herzegovina, Brazil (1996), Bulga ria (1985), Canada (2007), Czech (1994), China (1986), Croatia2, Den mark including the Faroe Islands3 (1996), Egypt (1965), Estonia (1993), France (1970), Georgia (2007; applied from the beginning of 2009), Germany (1979), Greece (1980), Hungary (1978), Ice land2 (1996), India (1983), Indonesia (1987), the Republic of Ireland (1992), Israel (1997), Italy (1981), Japan (1972), Korea, Republic of (1979), Kyr-gyzstan (2003) Latvia (1993), Lithuania (1993), Luxembourg (1982), Macedo-nia (2001), Ma laysia (1984), Malta (2000), Montenegro, Mexico (1997), Moldova (2008; applied from the beginning of 2009), Morocco (1973), the Nether lands (1995), New Zealand (1982), Norway3 (1996), Pakistan (1994), the Philippines (1978), Poland (1977), Portugal (1970), Rumania (1998), Russia (1986), Singa-pore (2002), Slovakia (1999), Slovenia (2003), South Africa (1995), Spain (1967), Sri Lanka (1982), Sweden3 (1996), Switzerland (1991), Tanzania (1976), Thai-land (1985), Turkey (1986), Ukraine (1994), the United Arab Emirates (1996), the United Kingdom (1969), USA (2008), Uzbekistan (1998), Vietnam (2001), Yugo slavia2 (1986) and Zambia (1978).

The agreements, with the exception of a few (mainly old ones), are based on the OECD recommendations included in the several versions of its Model Con-vention. Since the early 1970s, the basic method for eliminating double taxation used by Finland in its double taxation agree ments with other states has been the ordinary credit method.

The agreements usually incorporate some of the following features:

provisions concerning the taxation of Finnish real estate companies (see •2.5.14) in all agreements concluded after 1968;

article 9 (associated enterprises) emphasises the principle that an adjustment •has to justified both in principle and as regards the amount (in accordance with OECD Model, Commentary on Article 9, paragraph 6);

Finland favours a zero-rate tax on interest and royalties in the state of •source;the exclusion from the royalty article of income from the leasing of equip-•ment (taxed as business profits);

2 After the dissolution of Yugoslavia, the Agreement concluded between Finland and Yugoslavia applies only between Finland on the one hand, and Bosnia-Herzegovina, Croatia and Montenegro on the other.

3 Multilateral Nordic Treaty.

102most pensions are taxed ("may be taxed" or "shall be taxable only") in the •state from which they originate;

the article on teachers and professors is not included in the agreements;•

the latest agreements do not include tax sparing provisions;•

the latest agreements include provisions concerning hiring out of labour.•

For the applicable treaty rates see Ap pen dix 5.

In addition Finland has concluded with China, Hong Kong and USA limited agreements, which cover the avoidance of double taxation of profits from ship-ping and/or air transport.

Finland has concluded

double taxation agreements concerning taxes on in he ritances with France •(1958), the Nether lands (1954), Switzerland (1956) and the United States of America (1952) and concerning taxes on inheritances and gifts with the other Nordic Countries (Den mark, Iceland, Norway and Sweden) in 1989;

10 conventions (all in 2005) concerning the automatic exchange of informa-•tion about savings (in the context of the EU Savings Directive, 2003/48/EC) income in the form of interest payments: Anguilla, Aruba, British Virgin Islands, Cayman Islands, Isle of Man, Jersey, Guernsey, Montserrat, Neth-erlands Antilles and Turks & Caicos Islands;

in 2008 with Isle of Man agreements, which are already partly applicable •and which concern exchange of information relating to tax matters, mutual agreement procedures in connection with the adjustment of profits of asso-ciated enterprises, avoidance of double taxation with respect to enterprises operating ships or aircraft in international traffic and avoidance of double taxation on individuals (a restricted double taxation agreement). Similar agreements have been signed with Guernsey and Jersey in 2008;

a multi la teral agreement on administrative as sistance in tax matters with the •other Nordic Countries (Denmark, including the Faroe Islands and Green-land, and Iceland, Norway and Sweden) in 1989 and a bilateral agreement with Germany (1935). Moreover, Finland is a party to the OECD/Council of Europe Con ven tion on Mutual Administrative As sis t ance in Tax Matters;

working agreements concerning mutual assistance in its various forms •(exchange of information etc.) with Estonia, Italy, Latvia, Lithuania and Poland.

103As an EU Member State, Finland has implemented the Directive concerning

mutual assistance by the competent authorities of the Member States in the field of direct taxation and taxation of insurance premiums (77/799/EEC), and the Directive on mutual assistance for the recovery of claims resulting from ope-rations forming part of the system of financing the European agricultural guid-ance and guarantee fund, and of agri cultural levies and customs duties, and in respect of value added tax and certain excise duties (76/308/EEC). Finland has signed the Convention on the eli mination of double taxation in con nection with the adjustment of profits of associated enterprises (90/436/EEC).

5.4 Arm’s length principle

5.4.1 General

According to the amended provisions concerning the arm’s length principle (applied as of 1st January 2007) if in a transaction between a taxpayer and a related party, these parties have agreed on terms or imposed terms which dif-fer from those which would have been agreed upon between independent par-ties, and for this reason the taxpayer’s business profits or income from other activity remain smaller or the taxpayer’s loss becomes bigger than they would otherwise have been, the income is increased by the amount that would have been accrued when the terms had corresponded to what would have been agreed on between independent parties. The principle applies also to transac-tions between an enterprise and its permanent establishment.

Parties to a transaction are related, if one party has control of the other party or if a third party alone or with its inner circle has control of both parties. A party has control of the other party when:

it directly or indirectly owns more than half of the other party’s capital;1.

it directly or indirectly has more than half of the voting power produced by 2. the other party’s all shares and other rights;

it directly or indirectly has the right to appoint more than half of the members 3. to the board of directors (or a similar organ) of the other corporation or to an organ, which has this right; or

it is generally led jointly with the other party or it can otherwise effectively 4. use control in the other party.

1045.4.2 Documentation

A taxpayer has to produce written documentation on annual transactions with related parties where the other party is foreign and on transactions between a foreign enterprise and its Finnish permanent establishment.

Small and middle-sized enterprises are not obliged to produce written doc-umentation. Such an enterprise is defined as an enterprise with less than 250 em ployees, a turnover of 50 million euros or less and a balance sheet (the total sum of it) of 43 million euros or less. It also has to fulfil certain criteria (con-cerning i.a. independence) of the definition of a micro, small and medium-sized enterprises in the European Commission Recommendation 2003/361/EC.

Following information must be given:

description of the business;1.

description of all relations falling under the definition in 5.4.1;2.

information on transactions between related parties and between an 3. enterprise and its permanent establishment;

functional analysis on all transactions mentioned in 3);4.

comparability analysis including the available information on points of 5. comparison;

description of the transfer pricing method and its application.6.

It the total annual amount of transactions between a taxpayer and the other party is less than 500 000 euros, information mentioned in 4)–6) is not required.

A taxpayer must present his transfer pricing documentation within 60 days after a request of the tax authorities. Transfer pricing documentation for a tax year must be presented after six months from the end of the last month of the accounting period at the earliest. Additional and supplementary documenta-tion, for instance information on comparable enterprises, must be presented within 90 days after a request of the tax authorities. All these time limits can be extended.

105

6 Value-added tax6.1 GeneralValue-added tax (VAT) is a general multi-stage, non-cumulative tax on con-sumption. VAT is a broad-based tax on most goods and services; it is levied at each stage in the production and distri bution of goods and services; the ac cumulation of the tax is prevented by means of a deduction system. When a person liable to tax purchases taxable goods or services, the supplying enter-prise charges VAT. The person liable to tax may deduct the tax paid by him on purchases (input tax) from the tax charged for his taxable supplies (out-put) tax. The difference between the output tax and the input tax is paid to the State. The final tax is borne by the consumer.

In Finland, VAT replaced the Sales Tax at the beginning of June 1994. As an EU Member State, Finland has subsequently harmonised its VAT system entirely with the EU rules by amending the VAT Act.

6.2 Tax systemVAT is imposed on the sale of goods and services, on imports (see 6.12.3), on intra-Community acquisitions of goods (see 6.12.2) and on removals of goods from warehousing arrangements (see 6.12.4). In principle, the scope of appli-cation of VAT covers any con sumption of goods and services. The supply of goods and ser vices in the course of business is taxa ble unless expli cit ly exe-mpted in the Act.

6.3 Persons liable to taxAny individual and legal person who sells goods or services in the course of their business is liable to tax. The tax is payable at every stage in the exchange of com-modities. Thus manu facturers, wholesalers and retailers are liable to pay VAT.

A precondition for the liability to tax is that the supply takes place in the course of business. The main criteria for ful filling this precondition are that the activity is carried out for the pur pose of gaining profit, is oriented towards a largely unrestricted body of customers, is con tinuous and carried out auto no-mously, and involves an element of business risk.

106If the annu al turno ver of the business activity does not ex ceed 8 500 euros,

no tax is levied. When this threshold for VAT liability is exceeded, the enterprise receives a relief, which gradually decreases with the increase of the turnover. The full amount of VAT is levied when the annual turnover reaches 22 500 euros.

The government bodies as well as the municipalities are liable to tax in the same way as private enterprises, but not in respect of activities in which they en gage as public authorities.

Corporate bodies for promoting the public good (e.g. charitable, phil-anthropic, cultural and sporting as so ciations) are liable to tax if their income is deemed to be income from business accord ing to the Income Tax Act.

In the case of imports of goods it is the importer who is liable to pay tax and in the case of intra-Community acquisition the person who effects the acquisition. As regards the removal of goods from warehousing arrangements the person who causes the good to be removed from such arrangements is liable to tax.

A reverse charge procedure is applied to taxable investment gold as well as gold material and semi-manufactured gold products of a purity equal to or greater than 325 thousandths. Instead of the seller, the purchaser is liable to tax if he has been registered for the VAT purposes in Finland.

At their request, two or more enterprises supplying principally financial or in surance services, as well as other enter prises controlled by them, can be con sidered to be a single taxable person for VAT purposes (i.e. through group regis tration). A precondition for such treat ment is that the enter prises have their domicile or fixed es tablis hment in Finland and closely bound to one another by economic, fi nancial and organi sational links. This group registration scheme enables the exemption from tax of the internal supplies of commodities within the group, which as such would be taxable supplies.

For practical reasons, reindeer owners and their herding co-operatives are sub ject to a special scheme of the same kind as the group registration.

6.4 Foreign enterprisesThe supply of goods or services in Finland is taxable re gardless of whether the supp lier is esta blished in Finland or not. Liabili ty to tax is caused by a single transaction in Finland if the supp ly is part of the business acti vities that a for-eign enterprise carries out abroad.

If a foreign enterprise does not have a fixed establishment in Finland, the purchaser is usually liab le to tax. In the case of distance sales, educational and scienti fic servi ces, cul tu ral, en ter tain ment and sporting events, other similar ser vi ces and passenger tran sport ser vices, the supplier is liable to tax. This rule also applies if the purchaser is a private person or a foreign enterprise, which is neither established nor re gis tered in Finland.

At their request, foreign enterprises can always become liable for tax in Fin-land. Generally a tax repre sentative established in Finland is required if a for-

107eign enterprise is not established or does not have fixed establishment in the EU. The tax representative is not responsible for paying the tax. The regional tax office can demand a security from the enter prise.

6.5 Taxable transactionsVAT is levied on the supply of goods and servi ces. Moreover, VAT is imposed on imports, on intra-Community ac quisitions of goods and on removals of goods from warehousing arrangements.

The supply of goods means that, for a consideration, the owner of tangible property transfers the owner’s right to dispose of that property. According to the VAT Act, real property is also tangible property, although the supply of real proper ty is in most cases exemp ted. Elect ric current, gas, heat, refri gera tion and similar commodities are also deemed to be tangible property.

The supply of services means any transaction, which does not consti tute a supply of goods, effec ted for a con si deration. Services related to goods, the leasing of goods, restaurant servi ces, the transfer of different rights and the ob ligation to refrain from resuming a business activity are, inter alia, treated as sup plies of services.

The tax is also imposed on goods or services which have been purchased for a purpose that has entitled the entre preneur to make a de duction or which have been produced in connec tion with an entrepreneur’s taxable activities if the goods or services are used for pri vate consumption, disposed of free of charge, or used for some other purpo se which does not entit le the entrepreneur to a deduc-tion ("own consumption"). A prere quisite for the taxation of servi ces produced by the enterprise itself for its own consump tion is that the enterprise produces same services for the market. However, to use such services for the enterprise’s exempt activities does not in principle render the entrepreneur liable to tax.

Transaction of goods and services in the context of transfer of all assets (or a part of them) to a person who carries on the business is not deemed to be sup-ply of goods and services. The same principle is applied to a transaction where, in the context of a bankruptcy, goods and services are transferred to bankrupt’s estate that carries on the business.

6.6 ExemptionsThe following supplies of goods and services are exempted from VAT:

hospital and medical care undertaken by publicly administered hospitals and •recogni sed pri vate hospitals or other similar ins titu tions, and the provision of medical care in the exer cise of the medi cal profes sions;

social welfare services;•

108educational services which are pro vided in accordance with the law or which •are subsi dised from State funds in accordance with the law;

financial services and transactions concerning securi ties (excluding con -•sultati on and safety-deposit ser vices);

insurance services and services per formed by insurance brokers and •in surance agents;

transactions concerning bank notes and coins used as legal tender (ex cluding •collectors’ items);

lotteries and money games;•

the ser vices of performing artistes, the sale of performances intended to •be sold to arrangers and the trans fer of copy right to literary and artistic work s;

real property, including building land;•

certain transactions carried out by blind persons;•

interpretation services for deaf per sons;•

cemetery services rendered by a pub lic cemetery;•

uncultivated berries and mushrooms sold by the person who picked them.•

The supplier of exempt goods and ser vices does not have the right to a de duc-tion or refund of (input) VAT on goods and services pur chased for these trans-actions.

In some cases the exemption has been realised through a refund to the sup-plier. This corre s ponds to zero-rate. The following supplies are exempted in this way:

subscriptions to newspapers and pe riodicals (loose-copy sale is fully •taxed);

printing services for membership pub lications of corpo rate bodies for the •public good;

vessels (excluding those used for sport and leisure); exemp tion covers the •sale, hire and charter of such vessels as well as repair, maintenance and other work carried out on them;

supply of gold to the Central Bank.•

Moreover, there are some exemptions with refunds associated with inter-national trade (see 6.13).

A special exemption scheme is applied to investment gold.

1096.7 Construction and services related to real property

Although the sale and rental of real property is exemp ted the following serv-ices are taxable:

construction services (including supp lies of new buil dings by pro perty devel-•opers);

the transfer of the right to take materials from the ground, right to fell trees •as well as fishing and hunt ing rights;

the hiring out of hotel rooms and camping sites and other similar accommoda-•tion;

the hiring out of meeting rooms, exhibition space, places for spo rting activi-•ties and other similar space;

airport and harbour services for aircraft and vessels;•

the hiring out of safes; •

the hiring out of parking space;•

the hiring out of advertising space;•

the letting of space for gaming machines, vending machi nes or such like •equipment.

The lessor of real property may opt for ta x ation when renting pre mises to per sons liable to tax.

In order to avoid distortion of com pe tition, persons exempt from tax (real estate com panies, banks and insurance companies, lessors of real property) are liable to pay tax on cer tain services which are related to real property and produced by themselves for themselves (const ruction servi ces, cleaning, waste dis posal, care taking and management services), if the salaries including social security contributions of the personnel engaged in these services exceed 35 000 euros per year. If the owner or possessor uses the real property mainly as his own residence, he is not liable to tax.

6.8 Taxable amountThe tax base is the total selling price i.e. the considera tion paid by the pur-chaser excluding VAT. It in cludes all additional costs and other taxes except VAT. However, it does not include dis counts and other correction items. Sub-sidies directly linked to the price of goods and services are also included in the taxable amount.

In the case of sales of goods or services for a consideration, which is signifi-cantly lower than the market value, the taxable amount is deemed to be, instead

110of that consideration, the current market value, if there is community of inter-ests between the seller and the buyer.

Second-hand goods, works of art, col lector’s items and antiques sold by tax able dealers are subject to a special scheme. The taxable amount of the sale of such goods is only the margin of profit accruing to the seller. The margin of profit is calculated either on a trans action-by-transaction basis or according to the tax period.

A special scheme is also applied to travel agents acting in their own name which supply goods or services of other enterprises in their provi sion of travel facilities. All these transactions are treated as a single service and the taxable amount is the travel agent’s margin of profit.

In the case of the enterprise’s own con sumption of purchased goods or ser-vices, the taxable amount is the purchase price or, if lower, the market value. In the case of goods and servi ces produced by the enterprise itself for its own consumption, the taxable amount is the full cost of production. The taxable amount for construction services and other ser vices relating to real property is the cost price.

6.9 Tax ratesThe standard rate of VAT is 22 per cent (of the price excluding tax).

A reduced tax rate of 8 per cent is app lied to the following commodities:

books;•

medicines;•

passenger transport services;•

accommodation services;•

services enabling sporting activities;•

admissions to commercial sporting, cultural and entertainment per for-•mances, events and facilities;

subsidies based on the licence fees from the radio and television fund to •the Finnish Broadcasting Company and similar subsidies to Åland Radio and TV;

the sale of a work of art by the artist and the importation of works of art;•

hairdressing (as an interim measure until the end of 2010);•

minor repairing of bicycles, shoes and leather goods and clothing and house-•hold linen

(as an interim measure until the end of 2010).•

copyright payments received by copyright organisations. •

111A reduced tax rate of 17 per cent (12 per cent as of 1st October 2009) is applied

to foodstuffs and animal feed, excluding restaurant services, live ani mals, drink-ing water, alcoholic be ve rages and tobacco products.

For goods and services subject to zero-rate tax, se e 6.6).

6.10 DeductionsWhen the tax payable is calculated, the tax included in the purchase price of goods and services (in put tax) acquired for taxable business activities is de ductible. The taxpayer also has a right to deduct the tax paid by him for goods acquired via impor t or intra-Community acquisition for the same pur-pose. How ever, as a consequence of certain re strictions, the following acquisi-tions are not deductible:

goods and services related to dwell ings or buildings provided for the •re creation of personnel;

travelling costs of personnel between home and the workpla ce;•

representation and entertainment ex penses;•

boats and aircraft used for sporting and leisure purposes, cars, motor cycles •and cara vans (any means of transport which are to be resold, rented out or used in profes sional passenger transport or in driving lessons as well as pas-senger cars used only for tax able transactions are deductible).

6.11 Adjustment of deductionsDeductions on the basis of investment in real property are adjusted annually if the use of the property to purposes that qualify for deductions increases or decreases or the property is supplied during the ten-year adjustment period. The annual adjustment concerns 1/10 of the tax included in the acquisition. If the real property is supplied, the right to and obligation of adjustment are usu-ally transferred to the transferee. In VAT the concept of real property includes land areas, buildings and permanent structures and their parts, whereas machines and equipment serving a particular activity exercised on the real property are excluded from the concept.

As to the use of movable property, special rules are applied in order to adjust the deduction so that it corresponds to changes in the taxable use.

6.12 RefundsAs an exception to the general rule that only persons liable to tax are entitled to make deductions, the fol lowing exemp ted persons are entitled to a refund of (in put) VAT on goods or services purchased in Finland:

112enterprises established abroad, pro vided that they would be liable to tax if •they carried on business activities in Fin land;

foreign diplomatic missions and consular posts headed by career con sular •officers as well as the organs of the European Communities situa ted in Finland;

enterprises supplying certain exemp ted goods and servi ces (see 6.6);•

enterprises supplying goods and ser vices outside the Community or cer-•tain services mainly related to such goods (see 6.13.3);

enterprises supplying exempted financial or insurance services provided •that the purchaser is an enterprise which does not have domicile or fixed establishment in the Community or that the sale is associated with goods intended to be exported outside the Community;

enterprises supplying goods via intra-Community supply (see 6.13.2). •

The refund for enterprises established abroad is granted on appli cation. The right to a refund is equal in extent to the deduction rights of enterprises liable to tax in Finland. Hence, tax is not refunded on those purchases that are not deduc ti ble (see 6.10). The competent authority in these cases is the Uu simaa Corporate Tax Office.

In order to ensure neutrality between services provided by the municipalities themselves and purchased services, the municipalities are entitled to refunds to compensate (input) tax related to their non-taxable functions.

6.13 Foreign tradeThe only transac tions to be taxed are those that take place in Fin land. On the other hand, according to the principle of destination, VAT is meant to be le vied on goods and services that are consumed in Finland. As a conse-quence, the importation of goods is taxed whereas the sale of goods abroad is exempted. Since the effective end of importation and exportation following the abolition of fiscal frontiers in intra-Community trade, the principle of destina-tion is carried into effect by the taxability of intra-Community ac quisition and the exemption of intra-Community supply. As far as services are concerned, the principle of destinati on is mainly realised by provisions con cerning the place of supp ly.

1136.13.1 Place of transactions

VAT is only levied on transactions that occur in Finland.

Supply of goods

The supply of goods is effected in Finland, if:

goods are in Finland when the supply takes pla ce;•

dispatched or transported goods are in Finland when the dispatch or tra-•nsportation begins;

dispatched or transported goods are imported by the sup plier to be handed •over to the purchaser in Finland;

goods are transported from another EU Member State and installed or •assembled by the supplier in Finland;

the point of departure of the trans portation is in Finland when goods are •sold on board ships, aircraft or trains during the transportation of passen-gers effected within the Com munity.

A special rule is applied to distance sales effected in the Community i.e. sales of goods transported to Finland from another Member State and vice versa, when the supplier arranges the transport. The rule is applied only when the purchaser is a person whose acquisition does not qualify as intra-Community acquisi-tion (see 6.12.2). Goods trans ported to Finland from another Member State are deemed to be sold in Finland if the total value of distance sales of the supplier exceeds 35 000 euros in the same calendar year or the preceding year. Cor re-spondingly, the supply of goods trans ported from Finland to another Member State is effected in Finland if the total value of such sales does not exceed the applicable distance sales threshold in that other Member State. Irrespective of the value of the distance sales, the supp lier has a right to opt for taxation in the country of destination.

Supply of services

As a general rule, services are sold in Finland if the supplier has a fixed establish ment in Finland from which the ser vice is supp lied. When the ser vice is not supp lied from any fixed esta blish ment, the service is deemed to be sold in Finland if the supplier has his do micile in Finland. However, as to hiring out the means of transport, the service is deemed to be sold in Finland if the service is actually consumed only in Fin land.

The services of agents and inter mediaries who act for and on behalf of another person are deemed to take place principally in Finland if the mediated

114goods or services are sold in Finland. However, as far as intra-Community trade is concerned, if the purchaser uses a Finnish VAT identification number in the purchase, the services are in every case deemed to be sold in Finland. Corre-spondingly, if the purchaser uses a foreign VAT identification num ber, the serv-ices do not take place in Finland.

In the following cases the supply is deemed to take place in Finland:

services connected with real property if the property is situated in Fin-•land;

transportation services where the transport takes pla ce in Finland. However, •transporta tion services from Fin land directly to ano ther country and vice versa are not deemed to be sold in Finland. Intra-Community transport is deemed to be sold in Finland if the transport begins in Finland or the pur-chaser uses a Finnish VAT identifica tion number. Intra-community trans-port means the transport of goods from one Member State to another and includes such transport within a Member State, which is directly linked, with transport from one Member State to another. Corre spondingly, if the pur-chaser uses a foreign VAT identification number the service is not deemed to take place in Finland;

educational and scientific services, cultural, entertainment and sporting •events, ancillary tran sport servi ces, the valuation of and work on mov able tangible property if the service is provided in Finland; however, as to intra-Community transportation of goods, the supply of ancillary ser vices is deemed to take place in the Member State which issued the pur chaser with the VAT identi fication number being used; the last-men tioned rule also applies to the va luation of and work on movable tangible property provided that the goods are transported out of the Member State where the service was carried out.

the transfer of rights, patents, licen ces and similar rights, advertising serv-•ices, consul tancy services, data proces sing and supplying of informa tion, finan cial services, the supply of personnel and hiring out of movable tan-gible property (excluding the means of trans por t), the obligation to refrain from resuming a business activity, the provision of access to and transport or transmission through natural gas and electricity distribution systems and provision of other directly linked services, and the services of agents who act for and on behalf of another person when they arrange such services provided that in all these cases the purchaser has a fixed establishment in Finland for which the service is supplied or the purchaser has his domicile in Finland. If the purchaser has his do micile in Finland or in some other Member State, this special rule app lies only when the purchaser is an enterprise.

115This rule also applies to tele com mu nication services, radio and television

broadcasting services and electronically supplied services. In addition, these services are deemed to be sold in Finland if they are supplied from a fixed estab-lishment outside the Community or if they are not supplied from any such fixed es tablishment, the seller has its domicile outside the Community and the pur-chaser is not an enterprise and has his domicile or a permanent es tablish ment, for which the services are supplied, in Finland. A special scheme is applied to electronic services (see 6.13).

The supply of gas through the natural gas distribution system or supply of electricity is sold in Finland if they are delivered to a fixed establishment that a taxable dealer has in Finland. If these goods are not supplied to such fixed estab-lishment, the goods are sold in Finland if a taxable dealer has his domicile here. The expression ‘a taxable dealer’ means a taxable person whose principal activity is reselling such products and whose own consumption is negligible.

The supply of gas through the natural gas distribution system or supply of electricity to other than a taxable dealer is sold in Finland if the customer actu-ally consumes them here. Non-consumed goods are consumed in Finland if goods are supplied to the customer’s fixed establishment situated in Finland. If these goods are not supplied to a fixed establishment, they are consumed in Finland, if the customer’s domicile is here.

6.13.2 Intra-Community transactions

Intra-Community acquisition is defined as the acquisition of the owner’s right to dispose of movable tangible property effected for a consideration when the property is transported to Finland from another Member State. Corre spond-ingly, intra-Community supply is the corre sponding sale of such property when the property is transported from Finland to another Member State.

The rules concerning intra-Community acquisition and supply apply only to transactions between enterprises liable to tax. However, such acquisition made by exempt enterprises and non-taxable legal persons is subject to VAT if they acquire goods from another Mem ber State for a value in excess of 10,000 euros in the same calendar year or the preceding year. The acquisition of goods subject to excise duties effected by exempted enterprises and non-taxable legal persons is always deemed to be a taxable acqui sition. Moreover, irrespective of the purchaser, the acquisition of new means of trans port is always considered to be a tax able intra-Community acqui sition. In certain cases the acquisition is not tax able, for example when the importation is exempt from tax.

Intra-Community acquisition is deemed to be effected in Finland if the goods are in Finland at the time the transport to the purchaser ends. However, ac quisition made under a Finnish VAT identification number takes place in Fin-land unless the purchaser can establish that it has been subject to tax according to the general rule in another Member State.

116The intra-Community supply of goods is exempted from VAT. A precon-

dition for the exemp tion is that the purchaser is registered as a taxable person in other Member State and that the goods are transported to another Member State. The supplier has to prove that the transport to another Member State has taken place by means of a bill of lading, transport invoice or some other corre-sponding document. The supplier is entitled to a refund of (input) VAT on goods and services purchased for the intra-Community supply.

The transfer from Finland to another Member State of goods, which form part of the entrepreneur’s business assets for the purposes of his enterprise there, is also treated as an intra-Community supply. The entrepreneur is liable to pay tax on intra-Community acquisition in the Member State to which the goods are transported. Corre spondingly, goods transferred from an other Member State to Finland are tax able in Finland.

A simplification measure is applied in the case of triangulation i.e. when enterprise A established in member state A sells goods to enterprise B estab-lished in member state B, which then sells them forward to enterprise C estab-lished in member state C, triangulation is said to take place when the goods are then transported directly from member state A to member state C. In order to release enterprise B from the obligation to be registered in member state C, it is not liable to tax on the intra-community acquisition taking place in mem-ber state C and enterprise C is designated as the person liable to pay the tax on the sale from B to C.

6.13.3 Importation and exportation

The importation of goods is subject to VAT. The importation means any im portation of goods into the Community. In principle, the importation takes place in Finland if the good is in Finland at the time it is imported into the Com munity. The importer is liable to pay the tax. The tax rates are the same as in domestic sales. In certain cases, the importation is exempt from tax i.e. if the domestic sale is exempt. The tax is levied on the border as part of the cus-toms pro cedure.

VAT is not levied on goods that are consumed abroad. Thus many exemp-tions from VAT are associated with international trade, i.e. the sale of goods transported outside the Community, the sale of aircraft used by airlines oper-ating for a consideration mainly on inter na tional routes as well as the sale of goods for the provisioning of vessels and air craft operating on international routes. The supp lier is entitled to a refund of (input) VAT on goods and serv-ices pur chased for export.

In the international trade in services, the principle of consumption is real-ised by the rules concerning the place of trans action (see 6.12.1). The rules con-cerning international trade apply only to certain services, which are mainly associated with goods transported outside the Community.

1176.13.4 Warehousing arrangements

The aim of warehousing arrangements and other such arrangements is to simplify the taxation of chain trans actions. Supplies of goods, which will be or are placed under warehousing arrangements, in a free zone or in a free warehouse are on certain conditions exempt from the VAT even though the goods are in Finland. Also the supplies of services related to such goods and provided under the arrangements are exempt. The VAT on such supplies of goods and services must be paid at the time the goods cease to be covered by the arrangements. The taxable event then is the removal of goods from ware-housing arrangements, sale or im por tation. If the good is transported directly outside the Community, no tax is levied.

6.14 Tax procedureThe normal tax period for VAT is one month. For primary producers and art-ists the tax period is one year; they may however opt for the application of the normal tax period.

The tax payable is the difference between taxes on supplies and deduc tions attributed to each tax period. Th e tax becomes chargeable when the goods are delivered or the services are perfor med. The deduction can be made when the goods or services have been re cei ved. In the case of advan ce paym e nts, the time of payment is decisive. A taxpayer may account for the tax ac cording to the is suing of the invoice during the accounting period. Certain small-scale enter-prises may account for the tax on the basis of the receipt of payment.

The VAT due is to be paid at the latest on the fifteenth of the second month following the tax period.

The taxpayer submits a periodic VAT return when paying the tax due. If the taxpayer has neglected the obligation to submit the return or has submitted a defective or false return, the tax may be increased (minimally by 10 per cent, maximally by 200 per cent). The intra-Community supplies are declared quar-terly in a separate recapitulative return. A fine may be imposed in the event of failure to submit this return. The minimum amount is 80 euros and the maxi-mum 1,700 euros.

When services are provided to consumers by electronic means, a seller estab-lished outside the European Community may opt to operate a special scheme, where the seller fulfils his obligations concerning the filing of tax returns and paying the tax through only on Member State. In the special scheme the tax period is a quarter year and the tax return is given and tax is paid electronically within 20 days from the end of the tax period.

All taxpayers can file their applications of registration and tax returns elec-tronically.

In VAT due on importation the customs rules are followed.

1186.15 Invoicing

The conditions concerning invoicing for VAT purposes have been harmonised through a EU-Directive on the subject. According to the general requirements the following details must appear on an invoice:

the date of issue;1.

a sequential number, based on one or more series, which uniquely identifies 2. the invoice;

the VAT identification number under which the taxable person supplied 3. the goods or services;

the customer’s VAT identification number in reverse charge procedure or 4. intra-Community trade;

the name and address of the seller and customer; 5.

the quantity and nature of the goods supplied or the extent and nature of 6. the services rendered;

the date on which the supply of goods or of services was made or completed 7. or the date on which the payment on account was made, insofar as that date can be determined and it differs from the date of issue of the invoice;

the taxable amount per rate or exemption, the unit price exclusive of tax 8. and any discounts or rebates if they are not included in the unit price;

the rate applied; 9.

the amount payable in euros; the invoice must not indicate the VAT, if 10. the seller applies the scheme for marginal taxation of second-hand goods, works of art, col lector’s items and antiques.

where an exemption is involved or where the customer is liable to pay the 11. tax, indication that the supply is exempt or subject to the reverse charge procedure;

the particulars concerning a new means of transport sold to another 12. Member State;

where the scheme for marginal taxation of second-hand goods, works of 13. art, col lector’s items and antiques is applied, indication that the scheme has been applied or reference to the corresponding provision;

in the case of supply of travel services, an indication that the special scheme 14. for marginal taxation of travel agents or operators is applied or reference to the corresponding provision;

119if the supplier of investment gold opts for taxation of supply, an indication 15. that the supply is taxable;

if an invoice amends a previously drawn up invoice, reference to that in-16. voice.

However, only simplified contents are required in the following cases:

invoices for total of up to 250 euros; 1.

invoices issued for retail sales or made almost exclusively to private indi-2. viduals;

invoices for catering services or passenger transport excluding services, 3. which are to be sold on;

receipts printed out by parking meters and other similar devices.4.

In these cases the invoices must have the following information: 5.

the date of issue;6.

the name of the seller and his VAT identification number; 7.

the quantity and nature of the goods supplied and nature of the services 8. rendered;

the amount of tax per rate or the tax base per rate. 9.

These simplified invoicing requirements are not applied to intra-Community transactions, resale by an acquirer in an intra-Community transaction, distance sales of goods and sales of goods that are transported from an other Member State and assembled or installed here by the seller.

Besides ordinary invoices an invoice means also other certificates that act as invoices and fulfil the requirements concerning the informational contents. An invoice may be sent either on paper or, subject to acceptance by the customer, by electronic means. There are no particular conditions for electronic invoic-ing in the VAT Act. A summary invoice may be drawn up for several separate supplies of goods or services. An invoice may be comprised of several separate documents.

120

121

7 Excise duties

In order to ensure the functioning of the internal market and because the Member States are not allowed to exact taxation at the borders and carry out border checks, the EU has har monised the indirect taxation, in other words, excise duty and value-added tax.

For administration, appeals and advance rulings see 9.3.

7.1 Arrangement for suspending dutyExcise duty is levied in the Member State where the products subject to excise duty are released for consumption. Before the release goods can move within and between Member States exempt of duty under a special arran ge ment.

This arrangement for suspending duty (the ‘duty-suspension arrangement’) is allowed only in certain specified cases and between certain persons. The main features of the arrangement are:

goods may move between the tax warehouses of authorised warehouse keep-•ers;

an authorised ware housekeeper may send products under the duty-sus-•pension arrange ment, if the recipient is a registered trader in the other Mem-ber State or a similar non-registered trader;

traders are not allowed to hold or dispatch products under the duty-sus-•pension arrange ment;

products coming from third countries to which community customs sus-•pension procedures are applied, and products in duty-free zones and ware-houses are temporarily exempt from excise duty.

The system is applied to mineral oils, alcohol and alcoholic beverages and manufactured tobacco. It is also applied – to a certain degree – to products which are subject to national laws on excise duties. Such products are soft drinks, coal, milled peat, natural gas, electricity, pine oil, certain lubricating oils, drink con-tainers and cigarette paper.

122Provisions concerning the production, processing, holding and movement

of products as well as certain tax exemp tions for and the procedure relating to products subject to excise duty are in cluded in the Directive 92/12/EEC. In Finland they are included in the Excise Taxation Act which has been in force as of 1 January, 1995.

According to the Excise Taxation Act, authorised warehouse keepers, regis-te red traders and tax representatives must apply to the National Board of Cus-toms for a licence. The same procedure is followed in the case of the holdings of tax warehouses under duty-suspension arrangements.

In order to cover the risks associated with the movement of goods under the duty-suspension arrangement, a guaran tee corresponding to the amount of ex cise duties is obligatory.

Goods moving under the duty-sus pension arrangement between Member States are accom panied by a document for which there is a separate registration and information system in the EU. The use of this document serves to monitor the movement of goods without border formalities. For goods moving within a single Member State other documents may be substi tuted for the ac com pany-ing EU document. An authorised ware housekeeper dispatching products under the duty-suspension arrangement has to draw up the accompanying docu ment. The consignee has to return a signed copy of the document within a specified time to the consigner to confirm the (the consigner’s) exemption.

7.2 TaxpayersThe following are liable to pay excise duty: authorised warehouse keepers, reg-istered and non-registered traders (in the system of duty-suspension arrange-ment) and tax representa tives, a person who is in the position of debtor accord-ing to the customs legislation of the European Community (for goods impor-ted from the area outside the Com munity), persons who have acquired duty-exempt products that have not been used for duty-free purposes and persons who hold products already taxed in another Member State in the course of their business in Finland.

7.3 Time and rate of charge of dutyExcise duty is chargeable according to the rules in force on the date on which the product is released for consumption from the duty-suspension arrange-ment or when a shortage is recorded there and the shortage cannot be regarded as tax-exempt. In the case of registered and non-registered traders and goods on which excise duty has already been paid in another Member State, the excise duty is levied when goods are received in Finland. As far as the impor-tation of goods from third countries is concerned, the excise duty is levied according to the rules in force on the date on which the customs declaration

123of the goods is received by customs authorities if the duty-suspension arrange-ment is not applicable.

Authorised warehouse keepers are liable to pay the excise duty for products which have been released for consumption from a tax warehouse or for which a shortage has been recorded during any given calendar month. In the case of registered traders and tax rep re sen ta tives, the excise duty is levied on the prod-ucts that have been received during a given calendar month. Others have to pay the excise duty on products upon receipt.

7.4 ExemptionsIn addition to products actually exemp ted from the excise duty under the duty-suspension arrangement, the following products are exempted:

products exported outside the EC, in cluding goods placed under the cus-•toms ware housing procedure or moved to tax -free shops;

a shortage or loss of products under certain conditions;•

fuels and lubricating oils as well as provisions for vessels and aircraft in inter-•national commercial traffic; fuels (for own use and in fuel tanks) of other vessels coming from outside the EC;

products intended for delivery in the context of diplomatic or consular •re lations, and products for inter na tional organisations or their members under certain conditions;

products delivered to the organs of the EC (subject to certain res tric tions);•

products intended for consumption under an agreement with third countries •or interna tional organi sations provided that such an agree ment is allowed or authorised with regard to exemption from VAT;

certain non-commercial gifts of mi nor value (excluding alcoholic be ve rages) •sent by an individual from a third country to an individual in Finland and the fuel of motor vehicles coming from third countries; these gifts and fuels are exempt under the same conditions under which they are exempt from customs duty;

products that have been granted exemption in various excise tax Acts. •

The exemption is usually implemented through tax declarations. A refund is possible in certain cases.

1247.5 Travellers’ allowances

The excise duty on products imported by private individuals for their own use is levied in the Member State where the products have been acquired.

A traveller is entitled to import tax-free for his own use without any quanti-tative restrictions alcoholic beverages and tobacco products that he has acquired inclusive tax in an other EU Member State. Such importation is tax-free on the condition that the traveller brings the products along and they are intended for the traveller’s or his family’s personal use or to be given as a present.

In the case of countries that became EU members on 1 May 2004 the tax-free importation of tobacco products has been limited during the period of transi-tion (periods for Czech Republic, Slovenia, Slovakia, Hungary and Poland have already expired).

Member State Products End of period of transition

Lithuania 200 cigarettes 31.12.2009

Latvia 200 cigarettes 3 1.12.2009

Estonia 200 cigarettes or 31.12.2009

250 g pipe- and smoking tobacco 31.12.2009

If the products are imported from a third country, maximum tax-free quan-tities of smoking products are 200 cigarettes or 100 small cigars (with a maxi-mum weight of 3 grams) or 50 cigars or 250 grams pipe- and smoking tobacco. Alternatively a traveller is entitled to import different sorts of tobacco products if the aggregated amount of the used maximum tax-free quantities (as percent-age shares) is at most 100 per cent (e.g. 100 cigarettes and 25 cigars, in other words 50 % + 50 %).

The quantities of alco holic beverages are 4 litres of still wines and 16 litres of beer and in addition to that 1 litre of distilled alcoholic be verages and spirits (with an alcoholic strength exceeding 22 % volume) or 2 litres of distilled alco-holic be verages (with an alcoholic strength not exceeding 22 % volume).

Passengers arriving by air or by sea from outside the EU can bring with them goods (other than alcohol and tobacco) duty- and tax-free up to the value of 430 euros. For passengers arriving by other means of transport the limit is 300 euros. For gifts the limit is 45 euros and for consignments subject to a charge, ordered from outside the EU over Internet by a private person, the limit is 150 euros (but VAT is always levied if the value of the consignment exceeds 22 euros). Moreo-ver, commercial import is always subject to customs duties and taxes

1257.6 Declaration and payment of excise duty

Authorised warehouse keepers, registe red traders and tax representatives have to file a tax declaration not later than on the eighteenth day following the fis-cal period (calendar month). Other tax payers have to file a tax declaration not later than on the second weekday after the receipt of the products.

In the case of an authorised ware housekeeper, the excise duty is assessed by the district customs office within which jurisdiction the warehouse falls. In other the cases the residence of the taxpayer is decisive.

The excise duty must be paid not later than on the twenty-seventh day of the month following the tax period. Non-registered traders and certain other tax payers must pay the duty not later than on the tenth weekday after receiv-ing the products.

7.7 Excise duty on manufactured tobaccoExcise duty on manufactured tobacco is levied on cigarettes, cigars and ciga-rillos, fine-cut tobacco for the rolling of cigarettes and other smoking tobacco. The duty is also levied on other products containing tobacco and on cigarette paper in retail form (Combined No men clature code 4813). The definitions of the different products correspond to the definitions of the EC directive. Also products manufactured in whole or in part of substances other than tobacco ("substitute products") are subject to excise duty.

Products used for medical purposes (which do not contain tobacco), pro ducts supplied to the authorities as samples, and products used in the manufacture of other products subject to the same excise duty are exempted excise duty.The rates of excise duty are as follows :

TABLE 3. Rates of excise duty on manufactured tobacco 1.1.2009

Product group(and its number)

Europer unit

% of the retail sales price

1) cigarettes (1) 15.13/1000 pcs 52.0

2) cigars and cigarillos (2) 24.0

3) pipe and smoking tobacco (3) 3.62/kg 48.0

4) fine-cut tobacco forrolling of cigarettes (4) 3.62/kg 52.0

5) cigarette paper (5) 60.0

6) other products containing

tobacco (6) – 60.0

126A minimum excise duty is levied on cigarettes and fine-cut tobacco for the

rolling of ciga rettes. It is 91 per cent of the excise duty on the product in ques-tion in the price category most in demand. Moreover, up to 31st December 2009 the excise duty on cigarettes is at least 122,50 euro/1 000 pcs and excise duty on fine-cut tobacco for rolling of cigarettes is at least 60 euro/kg.

The retail selling price is the highest retail selling price declared by the tax-payer, including all taxes. This price may be set freely by the taxpayer.

7.8 Excise duty on alcohol and alcoholic beveragesExcise duty on alcohol and alcoholic beverages is levied on beer, wine, inter-mediate prod ucts (i.e. aperitifs) and ethyl alcohol.

The rates are as follows:

TABLE 4. Rates of excise duty on alcohol and alcoholic beverages 1.1.2009

Product and ethyl alcohol strength % volume (exceeding the lower but not the upper limit; litre or centilitre;product group number in brackets)

Rate

Beer

– 0.5 – 2.8 (11.) 2.00 cent/cl ethyl alcohol

– more than 2.8 (12.) 23.60 cent/cl ethyl alcohol

Wines and other distilled alcoholic beverages

– more than 1.2 but at most 2.8 (21.) 5.00 cent/l of finished product

– more than 2.8 but at most 5.5 (22.) 125.0 cent/l of finished product

– more than 5.5 but at most 8.0 (23.) 184.0 cent/l of finished product

– more than 8.0 but at most 15 (24.) 257.0 cent/l of finished product

Wines

– more than 15 but at most 18 (25.) 257.0 cent/l of finished product

Intermediate products

– more than 1.2 but at most 15 (31.) 312.0 cent/l of finished product

– more than 15 but at most 22 (32.) 515.0 cent/l of finished product

Ethyl alcohol CN-code 2208

more than 1.2 but at most 2.8 (41.) 2.00 cent/cl ethyl alcohol

more than 2.8 (45) 35.80 cent/cl ethyl alcohol

Others (46.) 35.80 cent/cl ethyl alcohol

127Products used mainly for purposes other than drinking are exempted, e.g.

for the production of medicines and foodstuffs.The excisable rate for beer produced in a legally and economically independ-ent brewery is lowered by

50 per cent if the maximum annual production is 200,000 litres;•

30 per cent if the maximum annual production is more than 200,000 but at •most 3,000,000 litres;

20 per cent if the maximum annual production is more than 3,000,000 but •at most 5,500,000 litres.

10 per cent if the maximum annual production is more than 5,500,000 but •at most 10,000,000 litres.

The packaging of beer into retail packages is not taken into account in cal-culating the amounts of production.

If two or more such breweries co-operate in production, they are not under-stood to be legally or economically dependent. Co-operation in production is defined as purchasing raw materials and equip ment, and the packaging, mar-keting and distribution of beer. A further condition is that the breweries’ total annual production does not exceed 10,000,000 litres.

7.9 Excise duty on soft drinksThe excise duty on soft drinks, a national excise duty, is levied on soft drinks including lemonades, mineral waters and juices.

The basic rate for soft drinks is 4.5 cents/litre. The duty on solid ingredients for drinks is 34 cents/kg.

In the case of liquid products used for production of soft drinks (including juices to be diluted) the duty is levied on the basis of the volume of drink they produce. Separate rules are applied to artificial sweeteners.

The duty is not levied on soft drinks produced by a legally and economi-cally independent producer if the maximum annual production of the drinks is 50,000 litres.

Exempt are soft drinks used for the manufacturing of sweets, soft drinks, medicines or alcoholic beverages.

7.10 Excise duty on certain beverage packagesUnder the Act on Excise Duty on Certain Beverage Packages an excise duty which is widely based on environmental aspects is levied on alcoholic bev-erages and soft drinks. The assessment and the administration are a part of

128customs authorities tasks, whereas the environmental authorities monitor the functioning of beverage package systems.

Subject to tax are retail packages made of various materials (with the excep-tion of packages made of liquid packaging board) for alcoholic beverages, soft drinks, water and certain other beverages taken as such. Packages which are recoverable and used in a package deposit system are tax exempt.

The rate of the duty for beverage packages which are used in a package deposit system and as raw material is for the three first years 8.5 cents/litre. After this period of transition also packages used as raw material become tax exempt. The duty for non-returnable packages outside all beverage package systems is 51 cents/litre. A corresponding three year period of transition is also applied to any new products which are subject to tax under the act.

7.11 Excise duties on energy productsAn excise duty has been levied on traffic fuels, heating oils and other energy sources for several decades. In the early 1990’s Finland began to levy an excise duty on fossil fuels on the basis of environmental criteria. The duty rate depended, on the one hand, on the carbon content of the fuel and indirectly on the amount of carbon dioxide emis sions arising from their combustion and, on the other hand, on the energy content of the product.

In the 1996 energy tax reform the taxes on input fuels for production of elec-tricity were replaced by taxes on the end product, i.e. electricity and the CO2/energy taxes on electricity generation, and energy taxes on nuclear and hydro-power and imported electricity were re moved. Instead, a general tax is levied on electricity generated by various energy sources e.g. by using wind power, wood or wood chips. Renewable energy sources were taken into account by subsidising power plants generating electricity by using wind power, hydro-power or wood chips.

The tax rate for electricity is the same, regardless of the energy sources used. However, the rate is differentiated for consumers. Industry and professional glasshouse growers pay the lower rate of taxation (0.25 cent/kWh) whereas the rest of the electricity consumers are charged at a higher rate (0.87 cent/kWh).

The input fuels are taxed according to their CO2 emissions. The rate of CO2 tax has been raised to 20.41 euros/CO2 tonne). The tax on energy content has been removed. As a result, the total tax burden on heating fuels has increased.

The energy taxation is based on two laws, the Act on Excise Duty on Liq-uid Fuels (1994) and the Act on Excise Duty on Electricity and Certain Fuels (1996).

1297.11.1 Excise duty on liquid fuels

The excise duty on liquid fuels is levied on certain mineral oils. In practice the most important taxable products are motor petrols and gas oil used as propel-lant as well as gas oil (light fuel oil) for commercial, industrial or heating pur-poses, and heavy fuel oil. The duty consists of a basic duty and an additional duty. The duty on sulphur free petrol and gas oil used as a propellant is differ-entiated for environmental reasons.

A duty corresponding to the duty on motor petrol or gas oil used as a pro-pellant is also levied on other than the above-mentioned products if they are used as motor fuels. Correspondingly, the duty on light or heavy fuel oil is lev-ied on all mineral oils and hydrocarbons used as heating fuel.

Additives and extenders in fuels are subject to the excise duty under the same principles as the fuel to which they are added. Fuel intended to be used as gas oil for heating purposes and paraffin oil must contain a reactive reagent to reveal unauthorised use.

TABLE 5. Rates of excise duty on liquid fuels 2009 (with product group numbers)

Rates (cent/litre): Basic duty Additional duty

Strategic stocpile fee

Petrol– reformulated and with extremely low sulphur content (11) 57.24 4.78 0.68

– normal grade (21) 59.89 4.78 0.68

Gas oil used as propellant– reformulated and with extremely low sulphur content (31) 30.67 5.38 0.35– normal grade (41) 33.32 5.38 0.35

Gas oil for commercial, industrial and and heating purposes (51) 2.94 5.41 0.35

Heavy fuel oil, cent/kg (61) – 6.42 0.28

Kerosene (71) 33.32 5.38 0.35

Aviation petrol (81) 37.54 4.78 0.68

If a fuel does not have a rate in the rate table (published in the Act on Excise Duty on Liquid Fuels), it is taxed according to the rate of a motor or heating fuel, to which it corresponds taking into account the purpose of use. The same rule applies to all other products, which are used or are intended or sold to be used as motor fuels or their additives and extenders. A similar rule applies to hydro-carbons (excluding peat) which are used or are intended or sold to be used for heating. However, solid and gaseous fuels subject to the Act on Excise Duty on Electricity and Certain Fuels are not covered by these rules.

130The following products are exempt from excise duty and strategic stock pile fee:

fuels which are sold, delivered or imported to strategic stock;1.

fuels used as a source of energy in an oil refining process;2.

fuels used in industrial production as raw material or auxiliary material or 3. consumed as immediate inputs in the manufacturing of goods;

fuels consumed in vessels used for commercial purposes inside Finnish ter-4. ritorial waters or on inland waterways; fuels for fishing vessels are exempt to the extent that the vessels are used for professional fishing;

fuels used in electricity production (including maintenance of production 5. potential and start-up and shutdown of separate electricity production) ex-cept for fuels for generating electricity in a generator with a capacity of less than 2 MVA if the electricity is not transmitted to an electricity network.

fuels used in air traffic excluding fuels used in private recreational flying;6.

bio fuel for the purposes set out in Articles 8 and 9 in Council Directive 7. 2003/96/EC (energy tax directive) is exempt. These purposes include bio fuel used for heating, stationary motors and the use and maintenance of certain type of machinery (e.g. off-road vehicles), and

liquid petroleum gas.8.

A person who carries on professional greenhouse cultivation may apply for a refund of 5.85 cent/l for gas oil and 2.75 cent/kg for heavy fuel oil used in that cultivation (subject to a minimum aggregated use of at least 16 000 units per application filed by that person).

If electricity is produced in a combined production of electricity and heat (in a power plant), the duty on fuels used for the production of heat is paid according to the ordinary tax table for such an amount of fuel that is calculated by multiplying the amount of heat delivered for consumption by 0.9. Fuels for the production of heat are defined on the basis of heat delivered for consump-tion and by using effective temperature levels. Heat delivered for consumption means the amount of heat that has been delivered by a power plant into district heating or process steam networks and to corresponding utilization. Each fuel is considered to have been used in the same proposition for the production of electricity and the production of heat.

Under the Act on Refunding of Excise Duties for Energy Products Used in Agriculture (21st July 2006) professional farmers are (on application) entitled to refunds for heating oil and electricity used in agriculture.

The Act is not applied to energy products used in private household or in greenhouse cultivation if the cultivator is entitled to refund under Article 10 a of the Act on Excise Duty on Liquid Fuels and if the electricity used in green-

131house cultivation is subject to excise duty mentioned in Table II in the Annex to the Act on Excise Duty on Electricity and Certain Fuels (see 7.11.2).

The refund is granted both to individuals, partnerships of legal persons and corporate bodies, which carry on farming business (including grain drying) and have received in the tax year direct EU subsidies or other similar EU or national subsidies (defined in the Act).

Agriculture covers following activities carried on the farm of the applicant: cultivation of agri- and horticultural plants, fallowing, maintenance of non-cultivated fields as cultivable, domestic animal production and its products, beekeeping, horse management, storing of agri- and horticultural products produced on the farm, packaging, turning products commercially disposable and grain drying.

The refund is 5,85 cents/litre for light fuel oil and 2,75 cents/kilo for heavy fuel oil (both taxed in Finland and referred to in the Act on Excise Duty on Liquid Fuels) and 0,62 cent/kWh for electricity (taxed in Finland and referred to in the Act on Excise Duty on Electricity and Certain Fuels), which the appli-cant has used in agriculture during a tax year, and subject to a minimum limit of 50 euros.

An authorised ware housekeeper is entitled to deduct from the excise duty and strategic stockpile fee which it has to pay for a tax period the corresponding duty and fee it has to pay (on the basis of release for consumption) for hydro-carbons which have been recovered from motor petroleum. A further con dition is that the recovered hydrocarbons are liquefied to petroleum in a tax ware-house. The amount of hydrocarbon which entitles to the deduction is 0.14 per cent of the volume of petroleum released for consumption if the hydro carbons are recovered both in a tax warehouse and service station and 0.07 per cent if the hydrocarbons are reco vered in a tax warehouse. The refund is calculated on the basis of the duty on unleaded petrol, normal grade. The ware housekeeper from whose tax warehouse the motor petroleum has been released for con sumption is entitled to the deduction.

According to the Act on Fuel Fee for Private Pleasure Boats of 21st Decem-ber 2007 a fuel fee has to paid for private pleasure boats if duty exempt fuel or fuel with a low rate of duty has been substituted for petrol or gas oil taxed at the ordinary rates. The purpose is to prevent the use of such fuels in such boats (e.g. heating oil in diesel-driven boats).

The Act is applied to a private pleasure boat whose owner (individual or a legal person) is resident in Finland but also to a private pleasure boat whose owner is non-resident, if the boat is used in Finland.

A private pleasure boat is defined as a boat (or a vessel), which an individual or legal person uses as an owner or a lessee (or on some other basis) for other than commercial purposes and in particular for purposes other than the trans-port of persons and goods or providing services for a payment or for the pur-poses of public authorities.

132The fee must be paid if illicit use of exempt or mildly taxed fuel in a private

pleasure boat is detected, in other words if it is verified that such fuel is in the fuel tank. It is of no importance how and where the boat is used. The fee is not levied for fuel in the tank of boats coming into Finland. However, this is not applied and the fee may be levied if a reagent to reveal unauthorised use has been added to the fuel (according to the Act on Liquid Fuels).

The fee is payable by the boat’s owner or by its possessor if it is in the pos-session of a person other than the owner. Separate rules apply to cases where the possession is a result of crime. Ownership and possession are determined on the basis of register entries if no other evidence is presented. If the owner or possessor cannot be determined, the fee is payable by the driver.

The amount of the fuel fee is determined as follows:

Machine power Fuel fee (euro)

at most 50 kW 750

more than 50 – 100 kW 1 500

more than 100 – 150 kW 2 250

more than 150 – 200 kW 3 000

200 kW – 4 000

The fee may be increased in repetitive or aggravated cases.The Act also contains provisions for export ban on the boat, continuing of

the voyage and prohibition of use. In the case of road vehicles the Fuel Fee Act (8.1.4) is applied. It is

extensively based on the principles mentioned here.

7.11.2 Excise duty on electricity and certain energy sources

Excise duty on certain energy sources is levied on electricity, coal, natural gas, pine oil, as well as all gaseous and solid hydrocarbons (peat is excluded), which are used or sold to be used for heating purposes. The duty consists of a basic duty and an additional duty. The basis for deter mining the additional duty is the same as for liquid fuels. Also a strategic stockpile fee is levied.

1337.11.2.1 Electricity

TABLE 6 a). Rates of excise duty on electricity and certain energy sources 2009 (with product group numbers)

Product Basicduty

Additionalduty

Strategicstockpile fee

Electricity cent/kWh

– category I (1) - 0.87 0.013

– category II (2) - 0.25 0.013

Electricity is taxed on the basis of category II if it is used in the mining of minerals, industrial manufacturing and processing of goods or professional greenhouse cultivation and if the amount of electricity can be measured by delivery. All other cases fall under category I. See also the paragraph concern-ing tax period below.

In the case of electricity, the following are liable for duty:

electricity networks operators;•

persons (usually companies) who produce electricity in their earning activ-•ity except for

those producing electricity in a generator with a capacity of less than 2 MVA •if the electricity is not transmitted to an electricity network; and

those producing electricity in a vessel, train, car or other transport vehicle •for the vessel’s or vehicle’s own needs;

persons who have produced or bought electricity taxed at the rate of category •II if the electricity has been used or delivered for the purposes of category I; and

persons other than operators of electricity networks, who receive electricity •in their earnings activity from another EU Member State or import electric-ity from outside the Community, if the electricity does not flow through a network in Finland.

The tax period is one calendar month. The duty must be paid for the amount of electricity

delivered by a electricity network operator for consumption;1.

produced by a person pro ducing electricity in his earning activity includ-2. ing electricity bought by him tax exempt and then used by him or delivered for consumption subject to the duty;

134used by persons who have pro duced or bought electricity taxed at the rate of 3. category II when the electricity is used or delivered the purposes of category I; the duty is calculated as a difference between duties in categories I and II;

which persons other than operators of electricity network receive in their 4. earning activity from another EU Member State or import from outside the Community.

As an exception to items 1) and 3), the amount of electricity can be based on the amount that the operator of the network, directly or through a sales company, charges to the user of the electricity. The taxable amount of electric-ity which belongs to two or several tax periods may then be allocated to the tax period during which the user is charged for electricity delivered or to be deliv-ered. If (the rate of) the duty has been changed, the duty in force at the deliv-ery date is used. If the operator has overcharged in the context of transmission and too much duty has been paid, the operator is entitled to deduct the exces-sive duty and strategic stockpile fee during three years calculated from the year when crediting for the transmission took place. The deduction cannot exceed the duty to be paid for one tax period.

Exempted from the excise duty and strategic stockpile fee is electricity

transmitted between electricity networks;•

delivered to electricity network by persons producing electricity in their •earning activity;

delivered to an electricity network by persons other than possessors of elec-•tricity networks who in their earning activity receive electricity from another EU Member State or import electricity from an area outside the Commu-nity; or

delivered to an area outside of the European Community or to an area in •the Community to be consumed outside Finland;

delivered to be used directly in rail traffic;•

used in power plants in the machinery and equipment, which are necessary •for producing (including maintenance of production potential and removal and minimising of environmental impact) electricity or producing electric-ity and heat (combined production);

transmitted by an electricity network operator or person producing electric-•ity in their earning activity to another person who produces electricity;

If the electricity is produced with wind power, recyclable fuel, biogas or for-est processed chips or with hydro generator with a nominal maximum capacity of 1 MVA, the producer of the electricity may apply for a refund for electricity

135delivered to the network. The refund is not applied to electricity which is exempt as it is used in power plants in the machinery and equipment, which are neces-sary for producing (including maintenance of production potential and removal and minimising of environmental impact) electricity or producing electricity and heat (combined production) and electricity produced in a generator with a capacity of less than 2 MVA if the electricity is not transmitted to an electricity network and electricity produced in a vessel, train, car or other transport vehi-cle for the vessel’s or vehicle’s own needs.

The refund is 0.42 cent/kWh but for electricity produced with wind power or forest processed chips 0.69 cent/kWh and for electricity produced by using recyclable fuel 0.25 cent/kWh. A minimum amount of 100 MWh per applica-tion is applied.

If electricity is produced in a combined production of electricity and heat (in a power plant), the duty on fuels used for the production of heat is paid according to the ordinary tax table for such an amount of fuel that is calculated by multiplying the amount of heat delivered for consumption by 0.9. Fuels for the production of heat are defined on the basis of heat delivered for consump-tion and by using effective temperature levels. Heat delivered for consumption means the amount of heat that has been delivered by a power plant into district heating or process steam networks and to corresponding utilization. Each fuel is considered to have been used in the same proposition for the production of electricity and the production of heat.

7.11.2.2 Coal, lignite and natural gas

TABLE 6 b). Rates of excise duty on electricity and certain energy sources 2009 (with product group numbers)

Product duty Basicduty

Additionalstockpile

Strategicfee

Coal, lignite, solid fuelsmade from coal euro/t (3)

Natural gas (gaseous) (5)euro/MWh

-

-

49.32

2.016

1.18

0.084

In the case of coal and lignite, the following are liable for duty and the stra-tegic stockpile fee:

authorised warehouse keepers for the amounts which according to their •accounts have been released for taxable consumption during a tax period; and

authorised warehouse keepers for the amount used for their own con-•sumption.

136Exempted from the excise duty and strategic stockpile fee is coal

used in industrial pro duction as raw material or auxiliary material or con-•sumed as immediate inputs in the manufacturing of goods;

delivered by authorised warehouse keepers for consumption in the Com-•munity area outside Finland;

used in electricity production (including maintenance of production •potential and start-up and shutdown of separate electricity production) except for coal used for producing electricity in a generator with a capac-ity of less than 2 MVA if the electricity is not transmitted to an electricity network.

In certain cases taxpayers other than authorised warehouse keepers are enti-tled to a deduction for coal on which the duty has been paid and which is used by other persons for non-taxable use. This concerns coal used in industrial pro-duction as raw material or auxiliary material or consumed as immediate inputs in the manufacturing of goods and also coal used in electricity production (including maintenance of production potential and start-up and shutdown of separate electricity production) but not coal used for producing electricity in a generator with a capacity of less than 2 MVA if the electricity is not transmit-ted to an electricity network.

Persons liable for duty and strategic stockpile fee for natural gas are those who import natural gas from areas outside the Community.

Exempted is natural gas which is

used in industrial pro duction as raw material or auxiliary material or con-•sumed as immediate inputs in the manufacturing of goods;

used as a source of energy in an oil refining process; or•

used in the production of electricity (including maintenance of production •potential and start-up and shutdown of separate electricity production) with the exception of natural gas used in the production of electricity in a vessel, train, car or other transport vehicle if the electricity is used for the vessel’s or vehicle’s own need or natural gas used in electricity production in small power plants.

Refund requires a minimum 330 euro amount of duty.

1377.11.2.3 Pine oil

TABLE 6 c). Rates of excise duty on electricity and certain energy sources 2009 (with product group numbers)

Product Basicduty

Additionalduty

Strategicstockpile fee

Pine oil cent/kg (6) 6.70 – –

Persons who are involved in industrial production and use pine oil for heat-ing purposes are liable for duty on pine oil.

7.11.3 Refund of excise duties on energy products to energy intensive enterprises

An enterprise is regarded as energy intensive if the total amount of the excise duty on electricity and certain energy sources (electricity, coal, natural gas, lignite or pine oil) and the excise duty on liquid fuels on light fuel oil and heavy fuel oil paid by the enterprise or included in the purchase price of cor-responding pro ducts acquired by the enterprise during its accounting period (usually a calendar year) exceeds 3.7 per cent of the value added. For the excess such an enterprise may apply for a refund for 85 per cent of excise duty paid on the products or included in their purchase prices. The refund is only paid for amounts ex ceeding 50,000 euros. Maximum refund is the amount of the excise duty on electricity and certain energy sources (paid for or included in the purchase price of electricity, coal, natural gas, lignite or pine oil).

In calculating the amount of excise duties, the energy tax refunds, which have not been taken into account in the excise taxation of the enterprise, and subsidies for professional greenhouse cultivation, are subtracted. If the enter-prise has further disposed of these products, the amount of excise duties paid by the enterprise for these products is not taken into account in calculating the amount of excise duties. The value added is defined as the total amount of the operating income (or loss), write-offs, value adjustments and personnel costs calculated according to the con firmed financial statements of the correspond-ing accounting year.

138

139

8 Other taxes and other tax revenues

This chapter lists and describes taxes, which differ widely in character.

8.1 Road traffic taxes and other traffic taxes

8.1.1 General

Motor vehicles and fuel used for road traffic are subject to the following taxes:

Road traffic taxes applicable to motor vehicles registered in Finland:

car tax on passenger cars, delivery vans, buses or coaches and motorcycles •(Car Tax Act of 29 December 1994);

vehicle tax on diesel-driven vehicles (tax on the propelling force; Vehicle •Tax Act of 30 December 2003);

vehicle tax on passenger cars and vans (basic tax; Vehicle Tax Act of 30 •December 2003).

excise duty on fuel (see 7.9.1);•

VAT on the sales price of vehicles and fuel, levied at the standard rate of 22 •per cent;

fuel fee (Fuel Fee Act of 30 December 2003).•

Taxes applicable to motor vehicles registered abroad:•

flat-rate tax levied for each day of use in Finland and kilometre tax on dis-•tance travelled in Finland Vehicle Tax Act of 30 December 2003);

fuel fee (Fuel Fee Act of 30 December 2003).•

1408.1.2 Car tax

It should be noted that some of the latest changes in car tax are applicable as of 1st April 2009.

The car tax is a purchase tax, which must be paid before the first registration or use of the vehicle in Finland. The car tax is levied on the following vehicles (all defined in Vehicles Act of 11 December 2002):

a) passenger cars (category M1);b) delivery vans (category N1) and buses or coaches (category M2) weighing

less than 1,875 kg;c) motorcycles (categories L3 and L4) and motor tricycles, quadricycles and

light quadricycle (categories L5 and L7).

The amount of car tax is the taxable value of the car multiplied by the cor-responding percentage in the Car Tax Table I (see Appendix 12), i.e. 12.2–48.8 per cent of the taxable value of the car. The percentage is determined by using the carbon dioxide emission level (grams per kilometre) that corresponds to combined consumption of the car.

When emission data is not available, the percentage is determined on the basis of table I by using a computational carbon dioxide emission level that corresponds to weight and (engine) power of the car. If the car’s power (in kW) divided by its weight (in kilograms) equals 0.15 or more, the computational carbon dioxide emission level is increased by multiplying it with 1.5. This rule is not applied if a taxpayer or a registered agent shows that the carbon dioxide emission level for a passenger car or a van has been confirmed in certain EU Directives (93/116/ EU or 2004/3/EU) or in corresponding legislation, or if the level has been defined in the EU legislation in force at the time of taxation.

The percentage points (or figures) mentioned in Car Tax Table II are deducted from the percentages (figures) mentioned in Car Tax Table I in the case of a van in the category N1 (delivery vans) if the van has been equipped with only the seats beside the driver’s seat (and appliances for transporting wheel chairs) or with appliances for their fixing and if the van has a total weight of more than 2 500 kg and fulfils certain other criteria concerning its carrying capacity. How-ever, the tax is always at least 12.2 per cent of the taxable value.

For buses or coaches weighing less than 1,875 kg the rate is 31.7 per cent of the taxable value.

141The tax on motorcycles, motor tricycles, quadricycles and light quadricycles is calculated on the basis of engine capacity as follows:

TABLE 7. Rates of car tax for motorcycles in 2009

Engine capacity in cubic centimetres (cc) Rate of tax as a percent-age of taxation value

up to 130131 – 255256 – 355356 – 505506 – 755756 or moreElectric vehicles in category L

9.812.215.919.522.024.412.2

The tax is recharged on earlier registered vehicles (cars or motorcycles) if at least 50 per cent of their parts have been changed.

The taxation value for a car or a motorcycle is the vehicle’s ordinary retail value on the Finnish market at the time of the taxation. This means the price that would be generally obtained when one similar vehicle (with tax included) is sold on the Finnish market to a buyer who is in the position of a consumer. If a value based on the ordinary selling prices is not available, the ordinary retail value is determined starting from the price for which similar vehicles are generally offered for sale and reduced by an amount representing customary discounts. If the value of a used car cannot be determined on the basis of the retail value due to lack of market information, the value can be determined on the basis of the value of a new car by lowering the value with 1 per cent for each month of use. If there is sufficient reason to make an exemption concerning this method of calculating the lowered value, it is possible subject to certain condi-tions. The retail value cannot be determined alone on the basis of acquisition price of the car to be taxed.

The following vehicles, inter alia, are exempt: fire engines, ambulances (and cars for veterinary purposes) and lorries, motor caravans and caravans with unladen weight of at least 1,875 kg, cars used by foreign diplo matic missions and consular posts headed by career consular officers, as well as members of their personnel who are not Finnish nationals, three-wheeled deli very cycles, cycles for disabled people and mopeds, passenger cars with a total weight of more than 6,000 kg. Cars owned and used by EU bodies located in Finland and cars owned and used by persons who have been per manently resident elsewhere than Fin-land and who have been engaged by such bodies are exempt.

Cars for disabled people may be partly exempted on application (a refund of 3,770 – 4,980 euros depending on the degree of invalidity the decisive lim-its being 60 and 80 per cent). Cars used as taxi cabs are granted a reduction of up to 9,600 euros.

142Non-residents are entitled to import their vehicles for their own use tax-

exempt for a period of six or twelve months (a customs district may extend the period up to two years).

When persons who have been abroad for at least one year move to Finland, the car tax on cars that they import (tax relief is only given for one such car) as removal goods is lowered by 13,450 euros, if they or their spouse have owned (or have had the kind of possession of the car that leads to ownership) and used the car abroad for at least six months. If they have imported a removal car earlier, a further condition (for the importation of another removal car with a lowered tax) is that they have before the second removal owned or had the possession of this car and also used it for at least three years at least one of which is in Fin-land. This exemp tion is not granted to persons under the age of eighteen at the time of the removal and persons who have earlier been resident in Finland and have been abroad mainly for studies.

VAT is no longer levied on car tax.The primary obligation to pay car tax lies with the person who is registered

as the car’s owner. In hire-purchase the obligation lies with the buyer who is registered as the first possessor of the car. If the car is imported or manufac-tured by a registered agent, the agent (usually an import company represent-ing the brand) is liable to pay the tax on behalf of the tax payer. In some cases the person who takes a car into use is liable to pay the tax. If the structure of a vehicle is changed so much that car tax has to be paid, it must paid by the owner or the person under whose period of ownership tax authorities learned about the change.

8.1.3 Vehicle tax

1) Basic tax

Owners or possessors of passenger cars, delivery vans, buses or coaches and lorries with a maximum weight under certain limits (of 3.5, 5.0 and 12 tonnes) and not removed from service are liable to pay vehicle tax if the vehicle has been or should have been registered in Finland. Liability to pay tax begins on the day when the vehicle is registered or is taken into use.

The tax per day is the share of the basis tax plus the share of the tax on pro-pelling force. The amount of the tax for the tax period is calculated by multi-plying the sum of basic tax and tax on propelling force by the amount of days in the tax period.

The basic tax is levied on passenger cars and delivery vans as well as special purposes vehicles with a total weight of 3,500 kg or less including certain dual purposes vehicles. At the moment the daily amount of the basic tax is 35 cents if a car or a van has been taken into use after 1st of January 1995 and 26 cents if it has been taken into use before that date. From 2010 the daily amount of the

143basic tax (ranging from 5.3 to 166 cents per day) for passengers cars and dual purpose vehicles is levied according to carbon dioxide emission level of the car (see Vehicle Tax Table I in Appendix 13). Otherwise and also in the case of lack of sufficient data on carbon dioxide emission level Vehicle Tax Table II (Appen-dix 13) is applied. For delivery vans, special purpose vehicles and motor cara-vans the daily amount of the basic tax is 35 cents.

Vehicles removed from service but still in the register are exempted for the days for which an announcement of removal from service is given.

The tax is assessed for 12-month tax periods.

2) Tax on the propelling force

The tax on the propelling force is levied annually on all vehicles using, entirely or partly, fuel other than petrol, i.e. diesel oil, kerosene, liquefied petroleum gas or electri city. The tax is assessed for 12-month tax periods. The rates per day are as follows:

for passenger cars and dual-purpose cars, 6.7 cents/100 kg of the total weight or •a fraction thereof and for motor caravans and delivery vans 0.9 cents /100 kg;

for two-axled lorries 1.0 cent/100 kg and up to 12,000 kg, and 2.2 cents •for each ad ditional 100 kg; for three-axled lorries 1.3 cents/1 00 kg and for four-axled lorries 1.2 cents /100 kg, and for five- or more axled lorries 1.1 cents/100 kg;

for lorries with a bogie construction 3.1 cents/100 kg if the vehicle has two •axles, 2.3 cents/100 kg, if it has three axles, 2.0 cents/100 kg, if it has four axles, and 1.8 cents/100 kg, if it has five axles or more;

for lorries with a bogie construction appro ved and used for the trac tion •of semi-trailers or trailers 3.1 cents/100 kg if the vehicle has two axles, 2.5 cents/100 kg if it has three axles, 2.3 cents/100 kg if it has four axles, and 2.0 cents/100 kg, if it has five axles or more.

Certain state-owned vehicles, fire engines, ambulances and lorries less than 12,000 kg unladen, cars used by EU bodies in Finland and foreign diplomatic missions, etc. and members of their personnel who are not Finnish nationals (under the condition of reciprocity), cars used temporarily in Finland or used for test driving, vintage cars subject to certain conditions and buses are just some examples of exempted vehicles. Motor vehicles using mainly wood- or peat-based fuel are also exempt.

The tax is refunded for lorries trans ported by rail in Finland (subsidy for combined transports). The transport has to be a part of an international trans-portation and the minimum dist ance must be at least a 100 km radius. The refund is 50 euros for each transportation.

1448.1.4 Fuel fee

Fuel fee is payable if certain lightly taxed fuels are substituted for highly taxed fuels. The purpose is to prevent the use of such fuels in vehicles (e.g. heating oil in diesel-driven vehicles). The amount of the fee is 100–1,000 euros a day according to the vehicle group. Public works vehicles, tractors used on sites where peat is handled, motor sleds, buses and lorries using liquid gas, natu-ral gas or other similar gaseous fuel, passenger cars and vans using fuel con-sisting of methane, motor vehicles in which mainly wood- or peat-based fuel is used, vehicles used in a competition or while preparing for a competition which is included in the competition register of the branch (sports) organisa-tion and tractors used in agriculture and forestry subject to certain conditions and restrictions.

For more information, see also Act on Fuel Fee for Private Pleasure Boats (in 7.11.1), which is based on similar principles and is applied to pleasure boats in similar situations.

8.1.5 Road taxes applicable to motor vehicles registered abroad

Motor vehicles registered abroad and using fuel other than petrol are subject to a flat-rate tax for each day of use and a tax based on the number of kilome-tres travelled in Finland, if they are used temporarily in Finland.

Persons liable to pay the tax are the owner or possessor of the motor vehicle or a person by whose order the vehicle is used in Finland.

euro/dayFlat rate tax,

euro/kmKilometre tax,tax, euro/day

Minimum kilometre

delivery van 13 0.10 33

bus 15 0.15 60

lorry 25 0.60 225

trailer 15 0.20 85

Vehicles registered in a state, which is a party to the Geneva Road Traffic conventions, are exempt from the flat-rate tax. Vehicles registered in an EU Member State are exempt from the flat rate tax and kilometre tax.

Finland grants reductions or exemptions through bilateral agreements with several states or through rulings made by the Ministry of Finance. In those few cases where the tax is levied, it is done by the Customs administration.

1458.1.6 Track tax

In order to partly finance the State’s costs for maintaining a rail network a track tax is levied on the use of the network. Liable to tax are persons who carry on railway traffic.

In the transport of persons and redeployment of locomotives the rate is 0.01 cent/gross tonne kilometre. In the transport of goods the rate is 0.05 cent if the propelling power is electricity and 0.1 cent if it diesel oil (an investment tax is levied on the use of a southern short cut at a rate of 0.05 cent in all cases). A gross tonne kilometre means a train’s total weight multiplied by the amount of kilometres run. The weight consists of the weight of all the machinery and the weight of the load. Traffic for museum purposes is exempt.

The rate is based partly on the amount of environmental costs of goods and passenger transport (which are highest when diesel oil is used) and also on the paying capacity in each type of transport.

Taxpayers have to give a monthly declaration on their own initiative. Track tax is administered by Finnish Rail Administration.

8.1.7 Tonnage tax

According to the Tonnage Tax Act of 2002 resident limited companies or per-manent establishments of companies resident in a EU Member State can choose to be taxed only on the basis on their net tonnage instead of being taxed on their net profit, if they carry on international sea traffic. A company or a per-manent establishment can become liable to tonnage tax only on application.

The rate is 0.4 euro/100 tonnes/day up to 1000 net tonnes, then 0.3 euro/100 tonnes/day up to 10,000 tonnes, then 0.2 euro/100 tonnes/day up to 25,000 tonnes and finally 0.1 euro/100 tonne/day if the tonnage is more than 25,000 tonnes.

Tonnage Tax Act includes separate rules concerning at arm’s length princi-ple, taxation of activities outside the scope of tonnage tax and income taxation after the tonnage taxation ends.

Tonnage tax is paid to the State.Tonnage tax is administered by the Tax Office for Major Corporations.

8.2 Municipal tax on real propertyA municipal tax on real property is levied on all real property situated in Fin-land unless a particular statutory exemption applies. The revenue goes to the municipality in which the property is situated.

The most important exemptions are water areas, forests and agricultural land. Other exemptions are almost exclusively of an administrati ve or technical nature having little economic significance. Diplomatic and consular property is exempt from the tax to the extent provided for in interna tional agree ments.

146The tax is payable by those who own taxable property or who occupy it in a

position that is comparable to that of an owner at the beginning of the calendar year. In the case of residential housing companies and other cor porations that are the legal owners of their properties, it is the company or corporate body, which is liable for the tax.

The tax due is determined by the taxable value of each property (determined on basis of the Act on the Valuation of Assets for Taxation) and by the tax rates set annually by each municipality.

Municipal councils determine annually the applicable tax rates within stat-utory limits. Councils have to set at least two tax rates: a general tax rate and a rate for buildings used primarily as permanent residences. The general rate may vary between 0.5 and 1.0 per cent whe reas the rate for permanent residences may vary between 0.22 and 0.5 per cent. Moreover, the council can decide that a special tax rate, which is no more than 0.6 percentage units higher than the rate for permanent residences, is applied to buildings used as second residences (i.e. summer residences) and that a rate that may vary between 1.0 and 3.0 per cent is applied to vacant lots. In the Helsinki Region and the surrounding communi-ties it is the duty of the councils to apply to vacant lots a rate which is between 2.0 and 3.0 per cent. The council can also decide upon separate tax rates to be applied to power plants and disposal sites of nuclear waste. This rate cannot exceed 2.5 per cent. However, in the case of water and wind power plant with a nominal maximum output of 10 MVA the general tax rate is applied. In the case of non-profit-making organi sations’ buildings, the rate may be less than 0.2 (down to zero) per cent if the building is mainly used for public or non-profit-making purposes.

8.3 Tax withheld at source from interestUnder the Act on Tax Withheld at Source from Interest (1990), a final tax is withheld at source at a rate of 28 per cent on the gross amount of the inter-est received by resident individuals and the domestic estates of deceased per-sons from domestic bank deposits and deposits in financial services offices and from bonds offered to the public for sub scription on the condition that the corresponding loan prospectus has to be delivered for acceptance to the Finish Financial Supervision or to competent authorities in a EEA Member State.

8.4 Tax on insurance premiumsThe taxation of insurance services is covered by a separate Act and is similar in certain respects to the VAT.

Tax is imposed on insurance premiums when the insured property or other insured interest is situated in Finland or the insured interest is related to activity exercised in Finland. Premiums related to a personal or credit insuran ce agree-

147ment or a reinsurance agreement or transport insurance for imported goods or goods in transit as well as premiums related to insurance for transport equip-ment are exempt from the tax.

The insurer is liable to the tax if the insurer runs its business in Finland. If the premium is paid to an insurer, which does not carry on its business in Fin-land, the policyholder is liable to the tax.

The rate of tax is 22 per cent of the premium, net of tax. The tax is payable monthly.

8.5 Tax on dogsOwners of dogs are liable to pay tax on dogs if the municipality has decided to levy such a tax. The maximum amount chargeable is 50 euros per year.

8.6 Tax on honorary titlesTax on honorary titles is levied on certain honorary titles. Its amount varies between 50 and 48,400 euros. The amount depends on the category to which the title belongs and also on whether the recipient of the title is still on duty (eligible employers are the State, municipalities and churches).

8.7 Transfer tax

8.7.1 General

The transferee of real property or securities is liable to pay transfer tax under the Transfer Tax Act (1996). The revenue goes to the State.

The following entities are exempted from the transfer tax: the State and its institutions excluding the State’s business institutions, the Social Insurance Institution, Enterprise Development and Financing Ltd, the Bank of Finland, the Fund for Industrial Co-operation Ltd (Finnfund), Finnish National Fund for Research and Development and the Government Guarantee Fund.

Individuals aged between 18 and 39 years are not liable to pay the tax when they purchase their first owner-occupied dwelling, whether by buying at least half of the shares carrying the right to the possession of a flat in a residential housing company or by buying real property and at least half of a building on it.

The following transfers are exempted:

transfers of real property or securities to a corporate body that continues a •previous activity in connection with a change in a corporate body’s form, a merger or a division (with or without the dissolution of the corporate body that is divided); the reorganisation must be realised under the legislation

148con cerning the type of corporate body in question; this exemption is also applied when real property of a savings bank or a co-operative financial institution is transferred to a financial institution which has been founded to carry on their activity;

transfers where the basis for the transfer is inheritance, bequest, gift, dis-•solution of joint ownership and, in most cases, distribution of mat rimonial assets;

transfers of real property and se curities to an EU organ situated in Finland, •if the property or securities have been acquired for its official use.

In the case of a transfer of assets (see 2.5.12.2) the tax levied on the transfer of real property or securities is refunded on application by the recipient cor-porate body.

Furthermore, if the consideration, which has been used in the transfer, is real property or securities (i.e. if the transfer is an exchange) the tax must be paid for both transfers.

8.7.2 Transfer of real property

The following are subject to tax:

a transfer of ownership of real property;•

a transfer of real property to general or limited partnerships, limited com-•panies or other corporate bodies if the consideration is a share or a part or if the transfer has been made in the same way as any other capital invest-ment; and

a transfer made as a consequence of the dissolution of a corporate body and •the transfer into private use of an asset by a partner or any other distribu-tion of assets.

Exempted are certain transfers to agricultural purposes, transfers where a municipality has used its right of pre-emption, exchanges of real property in order to found a nature conservation area or in order to optimize the location of parcels of agricultural land and certain transfers subject to an approval by the authorities.

Where real property has been acquired on behalf of an unregistered com-pany, a transfer of founders’ shares in such a company is made commensurate with a transfer of the real property.

Besides ordinary real property, real property also includes the following items:

149unseparated parcels and specified shares of real property;•

leasehold or usufruct of real property, which must be registered under the •Land Law Code;

buildings and constructions for the permanent use on the real property.•

The tax rate is 4 per cent. The tax base may be the transfer price, the value of any other consideration or the market value. The tax must be paid at the latest when applying for registration of the deed and title to the acquired real property. If the registration has not been applied for or an application is not necessary, the tax must be paid within six months of concluding the transfer contract. If the tax has not been paid for transfers that have been realised within ten years prior to the transfer in question, the transferee must also pay the tax for these transfers.

The Province of Åland, municipalities, local communities of a church or registered religious communities are not liable to pay tax on transfers of real property.

8.7.3 Transfer of securities

The following are subject to tax:

a transfer of ownership of securities (foreign securities, i.e. securities issued •by foreign corporations are outside the scope of application of Transfer Tax Act);

a transfer of securities to general or limited partnerships, limited com-•panies or other corporate bodies if the consideration is a share or a part or if the transfer has been made in the same way as any other capital invest-ment; and

a transfer made as a consequence of the dissolution of a corporate body •and transfer into private use of an asset by a partner or any other distribu-tion of assets.

Securities are defined as shares and interim certificates of share issues, cer-tificates of participation, bonds or other certificates of claim issued by a corpo-rate body where the interest is calculated on the basis of the debtor’s dividend or annual result or where the bond or certificate carries the right to participate in the debtor’s profits, letters of right of subscription and electronic book entries in a computerised trading system.

Transfer of securities issued by an unregistered corporate body is also lia-ble to tax.

Exempt are transfers of securities against a fixed monetary consideration on the condition that the securities have been admitted to be traded in a regular trading which is open to the public:

1501) publicly in a way referred to in Chapter 1 Article 3 of the Finnish Securi-

ties Markets Act or on some other regulated market referred to in Directive 2004/39/EC on markets in financial instruments amending Council Direc-tives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC;

2) on other regulated market supervised by public authorities and located in non-EEA Member State that has accepted the (Council of Europe and OECD) Convention on Mutual Administrative Assistance in Tax Matters; or

3) in multilateral trading referred to in Chapter 1 Article 3 a of the Finnish Securities Markets Act or similar multilateral trading, which is referred to in Directive 2004/39/EC and takes place within EEA, on the condition that the securities emitted by a company have been admitted to trading on application by the company or with its consent and that the securities have been taken into the computerised trading system or a similar foreign reg-istry system; if it is obvious that tax avoidance is the only or principal pur-pose of the application by the company for taking the securities to trading, the transferee is ordered to pay the tax, although the transferor also remains liable for it; the same principle is applied to a company has given its consent to taking the securities to trading.

A general condition for the tax exemption is that the broker or a party to the transfer is a security broker referred to in Chapter 1 Article 1 paragraph 1 subparagraph 4 of Finnish Securities Markets Act or that transferee has been accepted as a trading party on the market where the transfer takes place.

If the broker hired by the transferee or the party of the transferee is a broker other than a broker mentioned in Article 22 paragraph 3 of the Transfer Tax Act the tax exemption requires that the transferee who is liable to tax declares the transfer within two months after the transfer or that the broker gives to the Tax Administration an annual declaration. Tax exemption is not applied to

1) transfers based on bids made after the trading (according to 1 – 3 above) with the security has stopped or before it has started; this rule is not applied (so the exemption is applied) to a sale of a company’s old shares on the basis of a combined offer to buy and subscribe, if the sale takes place directly in the context of a share issue (stock exchange listing) and the object of the trans-fer is not identified until after the start of trading and the sales price is equal to the price paid for new shares.

2) transfers for fulfilling a redemption obligation concerning minority shares in a limited company;

3) transfers where the consideration consists partly or wholly of work input;

4) transfers that are capital investments or distributions of assets.

151If none of the parties to the transfer is resident in Finland (Income Tax Act

-based residence) or a Finnish branch of a foreign credit institution, a foreign investment firm or a fund management company, no tax is levied. If in cases other than those referred to in the preceding sentence the transferee is a non-resi-dent and not a Finnish branch of a foreign credit institution, a foreign investment firm or a fund management company, the transferor is obliged to charge the tax to the transferee. However, transfer of shares in a residential housing company or other real property company (including co-operatives), is subject to tax.

The tax rate is 1.6 per cent. The tax base is either the transfer price, the value of any other consideration or the market value.

The tax must be paid when the transfer contract is concluded if:

one of the parties to the transfer is a dealer in securities (defined as an invest-•ment service company, a credit institution or a Finnish branch of a foreign investment service company or credit institution) or if such a dealer acts as a broker or commission agent for one of the parties to the transfer;

the security is sold at an auction; or•

the transfer is made through a real estate agent.•

In all these cases the dealer in securities or the auctioneer is obliged to recover •the tax from the transferee and to pay the tax on their behalf.

In the case of shares in certain residential housing companies (mainly com-panies which have commissioned new dwel lings), the tax must be paid within two months of the transfer of ownership.

In other cases, the tax must be paid within two months of concluding the transfer contract.

Besides the transferee, the tax may also be recovered from a dealer in secu-rities or a real estate agent. When a security other than one traded in the com-puterised trading system (book-entry system) is reported for entry into a re gister of a corporate body (e.g. a re si dential housing company), the transferee or other person liable to pay the tax must present evidence that the tax has been paid. If the transfer has been registered without the presentation of such evi dence, the corporate body is liable to pay the tax.

8.8 Tax on lottery prizesAccording to the Act on Tax on Lottery Prizes (1992) persons who hold public lotteries or prize and guessing games in Finland are liable to pay tax on lot-tery prizes. The tax is paid to the State. The tax base is the total purchase value of the prizes or the proceeds of a lottery (i.e. the difference between turnover and prizes paid to the players). The tax rate varies between 5 and 30 per cent

152of the value of the prizes or between 1.5 and 9.5 per cent of the proceeds of the lottery. The tax must be paid within 1-2 months following the month in which the lottery took place. Paid-out prizes are not subject to income tax.

8.9 Tax on wasteLandfill site operators are liable to pay tax on waste under the Waste Tax Act (1996). Operators are obliged to register themselves for this purpose.

Tax on waste is levied on deliveries of waste to landfills. Waste is defined as any substance or object, which the holder discards, or intends or is obliged to discard. Waste from explosives, nuclear waste and radioactive waste are ex cluded.

The disposal of waste is an operation aimed at rendering the waste harmless or permanently depositing it.

The recovery is an operation aimed at leading to the separation and further use of the material or energy contained in the waste.

A landfill is a waste disposal site for the deposit of waste onto or into land, and one

which is operated by a municipality or any other body on behalf of a munic-•ipality; or

which is operated by any other entity for the purpose of receiving waste pri-•marily produced by other entities excluding waste produced by a company of the same group.

A site where waste is deposited se parately from other waste and tem porarily for a period of less than three years before its disposal or recovery, is not con-sidered a landfill (in this case there is an obligation to keep records concerning the deposited waste).

The Waste Tax Act is not applied to

sites where only soil and stone materials are deposited;•

sites where separately collected biological waste and sewage sludge are treated •biologically in a separate area;

sites for waste recovery. •

The following kinds of waste are exempted (assuming that they are separated from other waste when they are delivered to a landfill site):

contaminated soil, which may be deposited at the landfill site in question;•

waste from the de-inking of waste paper; •

153 fly ash and desulphurisation waste from power plants;•

waste (excluding glass waste and uncrushed concrete waste which consists •of blocks with a diameter of more than 150 millimetre), which is used at a landfill in constructions or buildings, which are necessary for establishment, use, closure or after care of the site.

The landfill operator is entitled to a credit for taxes paid or payable on waste, which has been removed from the landfill site during a tax period.

The tax base is one tonne of waste and the tax rate is 30 euros per tonne of waste. In order to determine their taxable weight, a conversion coefficient based on the volume of the waste is applied to the waste, which has not been weighed.

Tax is accounted for quarterly on the basis of waste delivered to the land-fill site. The landfill operator has to file a tax declaration not later than on the 12th day following this tax period and the tax must be paid not later than on the 27th day.

8.10 Postal feeUnder the Act on the Postal Fee for Se curing the Postal Services in Rural Areas (1997) a postal fee, which has the character of a tax, is charged of persons who have been entitled to carry on postal activities on a limited scale, e.g. in urban areas only. The aim is to secure the availability of postal services in rural areas. The basis is the price of the postal service (excluding the fee and VAT). The tax rate (percentage rate) is calculated by dividing the density of population of the area in question by 50. The maximum percentage rate is 20.

8.11 Excess profits of Veikkaus Oy (the Finnish National Lottery Ltd) and Raha-automaattiyhdistys ry (the Slot Machine Association)

Raha-automaattiyhdistys ry is a re gis tered association the members of which are non-profit-making organisations. The association is entitled to maintain slot machines and is also entitled to run a casino. The excess profits (net re venue) of the association are annually distributed to non-profit-making or ganisations to used for charitable purposes. The distribution is decided by the Government.

Veikkaus Oy (the Finnish National Lottery Ltd) is a state-owned company. The Government has granted the com pany a licence to run the national lot-tery. The excess profits of the company (net revenue from betting) are annually accounted for to the Ministry of Edu cation.

1548.12 Fire insurance levy

According to the Act on Fire Protection Fund of 11 April 2003 (306/2003) all persons who run insurance business in Finland are liable to pay an annual fire insurance levy. The base is the total gross amount of annual premiums paid for fire insurance policies. The rate is 3 per cent. The levy is deductible in income taxation. It is collected by County Administrative Boards and goes to the State’s Fire Protection Fund to be used for the purposes of fire protection.

8.13 Pharmacy feeAccording to the Act on Pharmacy Fees of 21 February 1946 (148/1946) phar-macies are liable to pay a levy to the State. The basis of the levy is the annual turnover of a pharmacist’s retail outlet. Besides VAT, the following items is not included in the basis:

contract manufacturing and sales of medicine to institutions of social •welfare and health care;

nicotine replacement therapy products that can be lawfully sold outside •pharmacies;

non-medical products up to 20 per cent of the total turnover after deduct-•ing the above-mentioned items.

One third of a branch’s turnover and at least 50,500 euros is deducted. If the turnover is less than 50,500 euros, the whole amount of the turnover of the branch is deducted. The deduction is not granted for branches in which five years after the year when they were founded the turnover corresponds to at least 50 per cent of the average annual turnover of the private Finnish pharma-cies in the preceding year.

TABLE 9. Rates of pharmacy fee

Rate:

Turnover:(euro)

Basic tax amount (euro)

Rate withinbrackets (%)

777 694 – 906 876 – 6 906 876 – 1 166 110 7 751 7 1 166 110 – 1 425 053 25 897 8 1 425 053 – 1 814 905 46 613 9 1 814 905 – 2 332 217 81 699 9.5 2 332 217 – 2 850 968 130 844 10 2 850 968 – 3 369 432 182 719 10.25 3 369 432 – 4 277 173 235 862 10.54 277 173 – 5 572 465 331 175 10.755 572 465 – 470 418 11

155The levy is assessed and collected by the National Agency for Medicines and

it goes to the State.

8.14 Seamen’s welfare and rescue levyAccording to the Act on Seamen’s Welfare and Rescue Levy (1936), all Finnish ships which are under re gistration duty and which are used in international shipping trade as well as foreign ships which are used in shipping trade into Finland, are liable to pay a seamen’s welfare and rescue levy. The tax base is the whole number, which shows the net tonnage of a ship, multiplied by 10 cents. In certain cases of emergency there is no ob li gation to pay the levy.

The levy it assessed and charged an nually by Customs districts and goes to the State.

8.15 Oil waste dutyThe oil waste duty is charged according to the Act on Oil Waste Duty (1986) on lubricating oils and solid lubricants (greases) falling under CN-codes 2710 19 71–2710 99 00. It is also charged on lubricating preparations falling under CN-codes 3403 19 10 – 3403 19 99 and 3403 99 10 – 3403 99 90. The revenue yielded by the duty is used to cover the expenses caused by treatment of oil waste. The duty is levied at a rate of 0.0575 euros/kg.

8.16 Oil damage dutyAccording to the Act on Oil Damage Fund (2004), a duty at a rate of 0.5 euro/ton is levied on oils falling under Customs Tariff headings 27.07, 27.09 and 27.10. The duty is levied at a rate of 1 euro/ton if the oil is transported by a tanker without a double bottom.

In the case of oil imported to Finland (also for transit transport) from another EU Member State the duty must be paid by the person who receives the oil in Finland and in other cases by the person who shows the form of customs clear-ance for the oil.

The duty is collected by the Customs administration. The revenue yielded by the duty goes to the National Oil Damage Fund and is used to cover the expenses arising from oil damage as well as the acquisition of response equipment and the maintenance of response prepa redness.

8.17 Game management fee and hunting licence feeAccording to the Act on Game Mana gement Fees and Hunting Licence Fees all game hunters are liable to pay a game ma nagement fee. The annual game ma na gement fee is 28 euros. It is used for game management pur po ses.

156A deer hunting licence fee must be paid by all persons who hunt deer (Cer-

vidae). The fee varies between 8 and 120 euros ac cord ing to the age of the prey. The revenue goes to the State and is used primarily for paying for the damage caused by deers.

8.18 Fishing management feeAccording to the Act on Fishing persons who fish or catch crayfish are liable to pay a fish management fee. Anglers (including ice anglers) and persons under the age of eighteen and persons over the age of sixty-five are exempt.

The annual fish management fee is 20 euros. Alternatively a fee of 6 euros can be paid for any period of seven days. For fishing with a lure an annual lure fishing fee of 29 euros is levied for each pro vince or alternatively 7 euros for any period of seven days and for every Province. In addition to the age-related exceptions mentioned in the preceding paragraph the fee is not levied in the case of fishing with a lure in public waters.

There is no sepa rate fee for ice angling. The revenue goes to the State.

8.19 Forest management feeAccording to the Act on Forest Ma na gement Associations (1998), the forest owners (in the municipality where the forest is situated) are liable to pay a for-est management fee.

The fee consists of a basic fee and a hectare fee. Every forest owner must pay the basic fee, which is 70 per cent of the arithmetic mean of the average price of a wooden cubic metre in Finland cal culated over the three preceding ca lendar years (for 2004 –2006 30,78 euros). The maximum hectare fee is 1.5, 3, 7 or 11 per cent of this arithmetic mean. The maximum amount payable to each sep-arate forest management association is the arithmetic mean multiplied by 30. The hectare fee is set an nually in advance for the follow ing year by each forest management association.

If the forest area is very small, the forest management fee is not levied. If the management of the forest is sufficiently well organised, the owner may be granted an exemption on application.

The forest management fee is assessed and collected by the local tax offices and it goes to Forest Management Asso ciations to be used for forest mana-gement purposes.

8.20 Fairway DueUnder the Act on Fairway Dues of 22 December 2005 fairway dues have to be paid for ships engaged in merchant shipping in the Finnish waters.

157Exempted are ships, which:

are used solely in inland navigation;•

on their way between foreign ports sail through Finnish territorial waters •without calling at Finnish ports;

arrive in and depart from Finland via the Saimaa Canal without calling at •a Finnish coastal ports;

have a net tonnage of less than 300 and are cruise ships or cargo ships (as •defined in the Act);

have a net tonnage of less than 600 and are passenger ships (as defined in •the Act).

The fairway dues are payable when the ship arrives in Finland from a for-eign port or in a Finnish port from another Finnish port.

The fairway dues are only payable once, if, during the same voyage,

the ship unloads the cargo it has carried from a foreign port or leaves the •passengers it has carried from a foreign port at more than one Finnish port or takes cargo or passengers destined for a foreign port from more than one Finnish port,

and between loading cargo in Finland, the ship calls at a foreign port to take •additional cargo for loading or stowing reasons.

No fairway dues are payable for ships that, for compelling reasons and solely for the purpose of receiving orders pertaining to the continuation of their voy-age, for repairs on the ship, for assessing the need for repairs or for bunkering, call at Finnish ports without taking or leaving cargo or passengers.

The unit price (in euros) for fairway dues payable for a cargo ship and a pas-senger ship is determined in accordance with the ship’s ice class, as follows:

Ice class Cargo shipUnit price

Passenger shipUnit price

IA Super 1.166 0.785

IA 2.182 1.547

IB, IC 4.403 2.666

II, III 6.318 4.455

The unit price for a cruising ship is 0.954 euros, for a high-speed ship 5.756 euros and for a ship without propulsion machinery of its own 3.172 euros.

158The amount of fairway dues of a cargo ship and a passenger ship is calcu-

lated by multiplying the unit fee by the net tonnage of the ship. However, if the net tonnage of a cargo ship exceeds 25 000, the exceeding part is multiplied by a figure that is half the unit price. In the case of vessel combinations the total net tonnage is used.

The maximum amount of fairway dues for one call is 98 400 euros, but for passengers ships 29 620 euros and for cruise ships 40 640 euros. When, for a pas-senger ship or a high-speed ship, fairway dues have been paid for 30 calls, and, for a cargo ship, fairway dues have been paid for 10 calls, the due is no longer levied in that calendar year. In the case of vessel combinations the number of calls is calculated on the basis of the vessel with propulsion machinery. If the circumstances affecting the fee change in a rate increasing manner, the fees payable for the calendar year are equivalent to the 30 highest fees payable for a passenger ship or a high-speed ship for a calendar year and, correspondingly, 10 highest fees for cargo ships.

In the case of cargo ships the fee is reduced by 75 per cent if the ship’s load-ing capacity utilisation rate is at most 15 per cent and by 50 per cent if the rate is more than 15 per cent but less than 30 per cent.

The fairway dues for a cargo ship are reduced:

by 50 per cent if the ship in connection with a voyage to the Saimaa Canal •carries cargo from a foreign port to a Finnish coastal port or takes cargo destined for a foreign port from a Finnish coastal port;

by 75 per cent if the ship carries cargo from a foreign port to a Finnish coastal •port and that cargo for compelling reasons concerning the ship’s large size must be transported by other ships from the port of arrival to another Finn-ish port;

by 50 per cent in the case of a cargo ship collecting transit goods exported •from a Finnish port, if the whole cargo is transit cargo.

The fairway due is levied by Customs districts and it goes to the State.

159

9 Tax administration, procedure and appeals

9.1 Income tax administration

9.1.1 Organisation

Taxation is administered by Tax Administration. It consists of National Board of Taxes (directly under the Ministry of Finance) and eight regional tax offices. These offices are responsible for customer service, tax decisions and tax con-trol on their regions. They consist of local tax offices and tax offices for cor-porations. Tax Office for Major Corporations is one of the regional tax offices and competent in the taxation of large companies. Among units for central-ised tasks are The Collection and Recovery Centre and the Tax Recipients’ Legal Services Unit (a unit for attending the rights of tax recipients).

Each regional tax office consists of a regional office and a number of local tax offices which serve their respective geographical territories called tax dis-tricts. There are currently 30 local tax offices. The regional offices serve as cen-tral units for certain func tions (such as VAT administration, audits and the collection of taxes) in one province (or if the scale of the activity so requires, several provinces). Customer service is also offered in Tax Administration’s own outlets or in joint outlets (where also services of other branches of Central Administration are offered).

Each tax district covers one or more municipalities, and has a tax office under the manage ment of a tax director. In future the concept of regional competence is abolished and the competence is determined on the basis of the customer or the contents of the matter.

Income tax is assessed by the tax office in the municipality where the tax-payer was resident at the end of the year preceding the tax year in question. This prin ciple also applies to corporate bodies.

The basis on which the income, profit and losses of a partnership are allocated to its partners is determined by the tax office in the municipality where the part-nership was resident at the end of the tax year preceding the one in question.

1609.1.2 Administrative procedure

A taxpayer has to file a tax return with the information on taxpayer’s taxable income, deductions, wealth and debts and other relevant information. The tax administration sends a prefilled form containing all the information already in the possession of the administration. The tax return is given to the tax office in the district where the taxpayer was resident at the end of the preceding year. Corporate bodies and partnerships must file, together with the return and the accom panying income statement and balance sheets, an audit report, extracts from the minutes of sharehol ders’ meetings and certain extracts from the business records. The tax office may also demand any additional informa-tion pertinent to the return.

A non-resident files his return with the Uusimaa Regional Tax Office or any Finnish embassy abroad.

If the competent authority for assessment is the Tax Office for Major Cor-porations, the tax return must be submitted to this office;

If the income is derived from the Province of Åland, the return must be filed with the South-western Finland Regional Tax Office.

The prefilled tax return must be filed in May on the day mentioned in the return and on 15th May in the year following the tax year at the latest. Tax-payers or partnerships which are enga ged in agricul ture or forestry must file their returns on the last day of February at the latest. Taxpayers who practice a profession or carry on a business have to file their tax returns on 1st April in the year following the tax year at the latest. Cor porate bodies must file their tax returns within four months of the end of their accounting year and in the meantime they may make supplementary payments in order to avoid the inter-est on tax. Employers, insurance com panies, payers of royalties, stockbrokers and other third parties are required (in some cases only on a particular request) to supply information on payments made.

The tax year usually corresponds to the calendar year. If the taxpayer’s ac counting period is different from the calendar year, the tax year is the account-ing period (or periods) which ends during the calendar year preceding the assess-ment year. In the assessment, the amounts of taxable income must be determined scrupu lously, due consider ation being given both to the taxpayer’s interests as well as those of the State and the muni cipality.

The regional tax office may, for the pur poses of the final assessment, deviate from the return filed by the taxpayer without giving prior notice to the taxpayer. However, if the deviation is essential, the taxpayer must be given a hearing. The taxpayer has the right to present his case if the tax return is found to be inaccu-rate and the assessment must be made on the basis of estimated income.

The assessment is made by the regional tax office. The assessment is com-pleted in the assessment year and at the latest in October. When the as sessment has been completed, certain information concerning the taxable in come of a

161taxpayer becomes publicly available. At the same time tax demand notes are sent to taxpayers.

In the assessment the principles of im partiality and objectivity must be fol-lowed. As a general rule, an unclear case or a case open to various inter pretations must be decided in favour of the taxpayer, if he has acted in good faith and has followed the tax aut ho ri ties’ instructions or their established practice. In such cases the tax autho rities generally waive penal surcharges.

The burden of proof lies with the party which has the best practical possibili-ties to give evidence. If the taxpayer has had transactions with a non-resident and the tax authorities cannot get the necessary information on the transac-tion or the party through a Double Taxation Agree ment, the burden of proof lies primarily with the taxpayer.

Minor amounts of income assessed in an additional assessment may be allo-cated to a tax year for which the as sessment has not yet been made.

In order to improve the collection of taxes from corporate bodies, interest at the rate of the reference rate of the Ministry of Finance plus two percentage points is calculated on the tax deficit (when the tax imposed exceeds the preas-sessment). Ac cord ingly, an interest at the rate of the reference rate of the Min-istry of Finance less two percentage points is calculated on the tax refund. The interest is calculated from the last day for filing the tax return to the first date the tax deficit is due or to the end of the month preceding the tax refund. If the taxpayer pays withholding after the last date for filing the tax return, the interest is calculated on the decreased deficit from the day after the day of payment.

Interest is also calculated on the tax deficits and refunds of other taxpayers. The interest is the reference rate of the Ministry of Finance less two percent-age points and it is calculated from 1 April of the year following the tax year to the first date the deficit is due or to the end of the month preceding the tax refund.

In the cases mentioned in two preceding paragraphs the taxpayer may avoid the interest on deficits by paying supp le mentary prepayments (see 4.1).

A surtax is levied in the case of unpaid taxes which must be paid at one’s own initiative to the State, municipalities, local communities of the Evangeli-cal-Lutheran Church or Orthodox Church and Social Insurance Institution. A tax which must be paid at the taxpayers’ own initiative is defined as a tax whose amount taxpayers have to calculate themselves and which they have to pay to the relevant authority on a day provided for in the law. The rate is the reference rate of the Ministry of Finance (as of 1 January 1999 4 per cent per annum) plus seven percentage points. The minimum amount is 3 euros.

A penal interest is charged for debited tax. It is set at the same rate as the surtax.

Tax information is confidential, but there are wide exceptions to this rule which have been stipulated in order to take into account various social and economic needs.

1629.1.3 Changing the assessment after the end of assesment

After the assessment a tax office can change the assessment, if the conditions mentioned in the Act on Assessment Procedure are fulfilled. Moreover, the taxpayer and the Tax Recipients’ Legal Services Unit may lodge an appeal.

Tax authorities may change the assessment for the benefit of the taxpayer but also to the disad vantage of the taxpayer. If the assessment made was too big, the tax office corrects the assessment. A correction is not possible, if a decision solv-ing the matter has already been rendered. All kinds of errors and deficiencies can be corrected. A correction for the benefit of the taxpayer has to made in five years calculated from the beginning of the year following the assessment year.

An correction to the disad vantage of the taxpayer is possible, if the taxpayer was assessed only partly or not at all or if otherwise tax has not been levied. A correction is not possible, if a decision solving the matter has already been rendered.

If the taxpayer has failed to file his return, the time limit for adjustment is five years calculated from the beginning of the year following the assessment year. Taxpayer is usually also ordered to pay surtax and tax penalty.

The time limit for a correction to the disad vantage of the taxpayer is two years calculated from the beginning of the year following the assessment year. This rule is applied to writing errors (made by the administration), calculation errors and other comparable errors, as well as errors caused by erroneous or inadequate information given by third parties. In other cases errors in the deci-sions can be corrected within one year calculated from the beginning of the year following the assessment year. If the matter is open to various interpretations or unclear, a correction to the disad vantage of the taxpayer is not possible.

A taxpayer and Tax Recipients’ Legal Services Unit may lodge an appeal. The time limit for the former is five years calculated from the beginning of the year following the assessment year, and to the later one year.

A taxpayer dissatisfied with the assessment has a right to appeal to the assess-ment adjustment board which is the first instance of appeal in every tax district. The chairman and other mem bers of the board are appointed by the National Board of Taxes on the re com mendation of the regional tax office. One quar-ter of the seats is reserved for the officials of the regional tax office, one quarter for the representatives of the municipalities (or for the representatives of the Association of Finnish Local and Regional Authorities, if the territory of the board covers the whole of Finland) and one half for the representatives of dif-ferent taxpayer groups.

An appeal to the board must be made before the end of the fifth year fol-lowing the assess ment year. However, the appeal may be made within sixty days after the taxpayer received notification of the decision against which he is appealing.

163The represen tatives of the State, the municipality, local communities of the

Evangelical-Lutheran and Orthodox Churches and the Social Insurance Institu-tion are also entitled to appeal to the assessment adjustment board. The appeal must be made within one year from the end of the date when the assess ment of the taxpayer’s income has been completed.

An appeal against a decision of the assessment adjustment board to the regional Administrative Court, which is an intermediate administra tive court, may be filed by the taxpayer or the above-mentioned authorities. The taxpayer must file the appeal to the regional Administrative Court of the province where he is resident, or if he is a non-re sident, to the Ad minis trative Court of Helsinki. For the taxpayer, the appeal period is five years calculated from the beginning of the year following the as sessment year but in any case sixty days after the taxpayer received noti fication of the decision against which he is appealing. For the authorities, the appeal period is one year from the end of the date when the assess ment of the taxpayer’s income has been completed but in any case sixty days from the date on which the assessment ad justment board made its deci-sion. The appeal must be filed with the local tax office.

Appeals against the decisions of an Administrative Court may be made, both by the taxpayer and the representatives of the State and the municipality etc., within 60 days to the Supreme Administrative Court if the court grants permission for a retrial on the basis of the following criteria:

the hearing of the appeal has an important bearing on other similar cases •or for securing the uniformity of legal practice;

there are special grounds for granting permission because an obvious error •has been made in the case;

there are other important grounds for granting permission.•

Advance rulings on the tax conse quences of proposed transactions are given by the Central Tax Board (which has its office in the premises of National Board of Taxes) and regional tax offices. An advance ruling is only given upon appli-cation by the taxpayer. The Central Tax Board will give an advance ruling if it finds the case to be of special importance either to the taxpayer per sonally or as a precedent. Essentially, the Board indicates the tax conse quences of plan-ned transactions; it does not issue advice regarding the best way to minimise taxes.

Both the taxpayer and the rep re sen tatives of the State and the municipality, etc., are entitled to appeal against the decision of the Central Tax Board within 30 days from notification to the Supreme Administrative Court. If the Board decides not to give an advan ce ruling, this decision may not be appealed against. The advance ruling is not binding on the taxpayer, but it is, if requested by the taxpayer in his tax return, binding on the State and the municipality. The tax-payer has to pay a fee for the advance ruling.

1649.2 Other taxes

9.2.1 General

The administration and procedure adopted in levying and collecting other taxes follows in many respects the pattern of the income tax administra-tion. Thus, the principle of the right to correct one’s own decisions is applied ex tensively in order to alleviate the workload of the courts. The last instance of appeal is the Supreme Administrative Court and appeals to the Supreme Administrative Court are always subject to permission for a retrial. The con-ditions for granting the permission are the same as in the case of income tax, see 9.1.3

9.2.2 Administration, appellate court and advance rulings

The general administration of car tax belongs to the National Board of Customs (as most cars in Finland are imported cars). The National Board of Customs is in charge of the car tax concerning taxation before the first registration of a car (including cars manufactured in Finland). The National Board of Taxes has some administrative functions with respect to the Vehicle Administration. If the structure or classification of a registered car is changed or ownership of the car is transferred, the taxation is administered by the Vehicle Administration.

The fuel fee, tax on diesel-driven vehicles and vehicle tax are ad minis tered either by the Vehicle Adminis tration, the National Board of Taxes or the National Board of Customs. These taxes are levied by the Vehicle Administration together with the Customs Administration (responsible for taxes levied on borders). The ap pellate court is the Ad minis tra tive Court of Helsinki. Advance rulings are given only for car tax and tax on die sel-driven vehicles and they are given by the National Board of Customs or the Vehicle Administration.

Tax on insurance premiums and VAT are administered by the National Board of Taxes and levied by the regional tax offi ces. The appellate court is the Ad ministrative Court of Helsinki. Ad vance rulings are given by regional tax offices and the Central Tax Board and for VAT by the National Board of Cus-toms (in the case of imports).

Inheritance tax and gift tax, real property tax, stamp duty, tax on lottery prizes and transfer tax are administered by the National Board of Taxes and levied by the regional tax offices (a transfer tax must usually be paid at one’s own ini tiative). Appellate court is the regional Ad ministrative Court and advance rulings are given by the regional tax offices. In the case of non-residents advance rulings for stamp duty and transfer tax are given by the Uusimaa Regional Tax Office.

The dog tax is administered and levied by the municipalities. The appellate court is the regional Administrative Court. (Advance rulings are not avail-able).

165The process whereby tax is withheld from interest at source is monitored

under the auspices of the regional tax offices. The appellate court is the regional Administrative Court and ad vance rulings are given by the Central Tax Board or regional tax offices.

9.3 PenaltiesThe penalty system includes ad minis trative fines and penalties imposed by general (criminal) courts.

Administrative fines, up to the amount of the tax assessed, are levied in the case of inten tionally or negligently false returns (and for failure to file a return on time).

Serious violations are a criminal offence and punishable by law. Under the Penal Code, the punishment for tax fraud is a fine or imprisonment. When the tax fraud is the result of defec tive book-kee ping for instance, the minimum punish ment is four months’ imprisonment.

9.4 ConfidentialityAccording to the Act on Publicity and Secrecy of Tax Information (1346/1999), tax secrecy applies to all taxation documents concerning a taxpayer’s economic situation and documents containing information on an identifiable taxpayer. Confidential taxation documents and information include tax returns, tax proposals, tax audit reports and appeal documents, including their annexes. Information provided by employers and others obliged to disclose information for taxation purposes are also covered by confidentiality.

Tax administration may give information concerning a document subject to tax secrecy only in the cases provided in the Act.

In the annual taxation public are (individual) taxpayer’s name, date of birth and municipality of residence and the following:

1) taxable earned income in State taxation;

2) taxable investment income in State taxation;

3) taxable (earned) income in municipal taxation;

4) income tax, municipal tax and the total amount of taxes etc. charged;

5) tax paid in advance (advance withholding);

6) taxes to be collected or tax to be refunded.

166In the annual taxation public are in the case of a corporate body, its name,

municipality of residence and Business Identity Code and the following:

1) taxable income;

2) the total amount of taxes charged

3) tax paid in advance (advance withholding);

4) tax to be collected or tax to be refunded.

All this information is public as such as it was when the assessment was ter-minated and it becomes public in November following the tax year.

Concerning the municipal tax on real property and certain other cases the following information is public:

1) the amount of the calculated municipal tax on real property and the name of the taxpayer liable to tax;

2) tax concessions granted to non-profit-making organisations: name of the organisation and tax years in which the concession is applied;

3) names of taxpayers who have been accepted as persons liable to tonnage tax, the date when the tax period begins and withdrawal of the acceptance.

Also certain information concerning unpaid taxes may be published.National Board of Taxes may, on application, give confidential information

to persons who need the information in order to take care of their interests, rights or obligations in the following cases:

1) to a widow, spouse, executor designated by a court etc. for the administration of personal estate of a deceased person and for division of such an estate;

2) to a trustee in bankruptcy for administrating the property;

3) to a municipality for taking care of its statutory obligations;

4) to local communities of the Evangeli cal-Lutheran and Ortho dox Churches for solving applications concerning discretionary tax reliefs;

5) to employers and pension institutions for the preassessment and withhold-ing of tax.

The information must not be used for purposes other than those they were given for. The applicant must also secure a sufficient protection of the infor-mation.

167Tax administration may also, on its own initiative, disclose information

(usually under the condition that the information is necessary for performing the task in question) in the following cases:

1) to authorities of State and municipalities and to certain public or other cor-porations or foundations if there is reason to doubt that certain crimes (sub-sidy fraud, aggravated subsidy fraud, subsidy misuse and subsidy violation) have been committed; also subsidies from the EU budget or another budget maintained by or for the European Communities are covered;

2) to authorities of State and municipalities and to corporations with public duties for the purpose of monitoring, in the context of their public duties, whether a crime has been committed; the maximum punishment for the crime must be more than 6 months of imprisonment;

3) to public authorities, pension and accident insurance institutions, corpora-tions or foundations in charge of statutory pension and accident insurance coverage for monitoring whether an employer or other person has fulfilled his statutory obligations;

4) to authorities in charge of prosecuting and criminal investigations (pre-trial investigations) or prosecuting and investigating tax and bookkeeping crimes and for court proceedings;

Information received under 1)–4) may be further disclosed to prosecut-ing and investigating crimes. The information must be destroyed immediately when it is no longer needed unless the special character of the task requires it to be stored permanently.

Tax administration has the right, on application to, to disclose information in a particular case to authorities in charge of prosecuting and criminal inves-tigation in the following cases:

1) for hindering, investigating and prosecuting crimes;

2) for imposing or extending a business prohibition;

3) for determining the amount of day-fines (in this case information is given also to courts).

Tax administration has the right to disclose information to:

1) execution authorities for cases of execution;

2) various public or other authorities that grant subsidies or monitor their use;

3) population register authorities;

4) State Treasury for the management of loans and guarantees etc.;

5) to authorities dealing with the arranging of lotteries in certain cases.

168Section 30 of the Act on Publicity in the Authorities’ Activity provides that

secrecy rules do not prevent Finnish tax authorities to exchange information in accordance to tax treaties or other international agreements. Moreover, Finnish tax treaties usually reproduce the language in Article 26(1) of the OECD Model Tax Convention, or a text to similar effect.

contains rules about a taxpayer’s right of access to the contents of a docu-ment which is not in the public domain, if they may influence or may have influ-enced the consideration of his matter.

According to Act on the Openness of Government Activities (621/1999) the taxpayer concerned has the right of access to information contained in an offi-cial document and pertaining to him.

169

10 The status of the Province of Åland

Under the Finnish Constitution, the in sular Province of Åland (situated to the south-west of mainland Finland) enjoys a large measure of internal self-govern ment (autonomy) but forms an integral part of the Republic of Finland. The Pro vince has a legislative assembly and an executive council of its own.

The Finnish Parliament has the general power to legislate on matters relat-ing to taxation for the Republic (including the Province). As part of the self-govern ment, the provincial legisla ture has the exclusive right to enact provin-cial le gislation on matters concerning ad ditional tax on income, temporary income tax, business and entertainment taxes, payable to the Province, as well as taxes payable to the municipalities (e.g. communal income tax). Thus, the In come Tax Act does not apply to com munal income tax in the muni cipalities of the Province, which has enacted a Municipal Income Tax Act of its own. The Åland Municipal Income Tax Act is, however, similar in most respects to the national legislation.

The excise duty legislation also applies in the Province (which has no power to legislate on indirect taxation). However, since the EU Act of Ac ces sion provides for the Province’s exemp tion from the regime for the harmonisation of indi-rect taxation, the procedure concerning import and export is applied to move-ments of products between the Province and the EU Member States, including the Finnish mainland.

As to VAT, the Province is subject to the general power of legislation for the Republic. As a general rule, the same VAT rules as apply to the mainland are applied to transactions taking place in the Province. As regards the transac-tions between the Province and EU Member States, including mainland Fin-land, the Province is considered to be a third country in accordance with the EU Act of Accession.

The Province is a part of the Finnish and Community customs territory.Double Taxation Agreements concluded by Finland are applied in the prov-

ince.The Province constitutes one single in come tax district comprising all muni-

cipali ties within the Province.

170

171Appendix 1

TABLE 10. Rates of state income tax on earned income 2009 (euro)

Taxable income Basic tax amount

Rate within brackets (%)

13 100–21 700 8 7.0

21 700–35 300 610 18.0

35 300–64 500 3 058 22.0

64 500– 9 482 30.5

The state income tax on investment income is levied at a flat rate of 28 per cent.

172Appendix 2

TABLE 11. Rates of inheritance and gift tax 2009

Rates of inheritance and gift tax are determined on the basis of two classes of relationship between the bene ficiary (the donee) and the deceased (the donor).

Tax class I: Spouse, direct heir in ascending or descending line, spouses’ direct heir in descending line and fiancé(e) receiving a certain allowance on the basis of Code of Inheritance). The concept of direct heir in ascending or descending line includes persons in adoption relationships and foster children in certain cases. Class I rates also apply if the provisions of the Income Tax Act concerning spouses are applicable for the year of death to the deceased and an individual who had lived with the deceased in free union, in other words class I rates apply to spouses who previously have been married to each other or who have (or have had) a child together.

Tax class II: All other cases (relatives or non-relatives).

Rates of inheritance tax for class I:

Taxable inheritance(euro)

Basic tax amount (euro)

Rate withinbrackets

(per cent)

20 000–40 000 100 7

40 000–60 000 1 500 10

60 000– 3 500 13

Rates of inheritance tax for class II

Taxable inheritance(euro)

Basic tax amount (euro)

Rate withinbrackets

(per cent)

20 000–40 000 100 20

40 000–60 000 4 100 26

60 000– 9 300 32

173Rates of gift tax for class I

Taxable inheritance(euro)

Basic tax amount (euro)

Rate withinbrackets

(per cent)

4 000–17 000 100

17 000–50 000 1 010 1 010

50 000– 4 310

Rates of gift tax for class II

Taxable inheritance(euro)

Basic tax amount (euro)

Rate withinbrackets

(per cent)

4 000–17 000 100

17 000–50 000 2 700

50 000– 11 280

174Appendix 3

Deductions and allowances 2009 (earned income)

deductions and allowances granted in both state and municipal income tax-ation of earned income:

1) A discretionary allowance of up to 1,400 euros for circumstantial incapac-ity to pay taxes. On the basis of expenses arising from sickness, the capac-ity to pay is deemed to be affected only if the taxpayer’s or his or her fam-ily’s expenses are at least 700 euros and amount to 10 per cent of the total earned income (after natural deductions) and investment income for the tax year in question.

2a) Standard deduction for work-related expenses 620 euros the maximum being the amount of employment income (expenses in curred in acquir-ing and maintaining chargeable employment income and not relating to travel expenses or mem ber ship fees paid to employ ment organisations are deductible only if their amount exceeds 620 euros).

2b) Deduction for a rented flat that enables a taxpayer to reach his regular place of work

A taxpayer

who has rented a flat in order to reach the location of his regular place of •work; and

who has also another home (ordinary home) where he lives with his •spouse or minor children and this home is at least 100 kilometres from the rented flat and the regular place of work for the location of which the flat was rented,

is entitled to deduct as expenses in curred in acquiring and maintaiing •income ("natural deduction") 250 euros (but not more than the rent paid for the flat) for each full calendar month when such a situation (of two homes) prevails.

The deduction is also granted if the taxpayer in addition to his rented flat has a regular home because of the location of another regular place of work and even though the taxpayer would live alone in his regular home.

175The deduction is granted under the same conditions if the taxpayer receives

a flat as a fringe benefit but the maximum amount of the deduction is then the value of the fringe benefit.

The deduction is not granted if the taxpayer has received tax exempt remu-neration or benefit related to living in another locality or if he has deducted costs for living in another locality in his taxation for the tax year in question. How-ever, a credit for domestic work (see Appendix 4) does not hinder the granting of the deduction.

If both spouses fulfil the requirements for granting the deduction and they both claim the deduction it is given to the spouse with higher earned income.

3) Deductions for forest workers are based on the use of certain equipment, tractors and work ing animals.

4) Deduction for pension insurance premiums

1. A taxpayer is entitled to deduct from his earned income (after natural deductions have been made) employees’ statutory pension insurance contri-bution and unemployment insurance contribution, contributions paid for tax-payer’s own and his spouse’s obligatory pension insurance.

A further requirement for the deductibility of premiums paid by the tax-payer or his spouse is that the premiums for the same insurance (policy) have not been deducted from agricultural or business income.

Premiums paid for statutory pension insurance are deducted from the income of the spouse who has claimed the deduction. Such claim must be made before the end of the assessment concerning the year for which the deduction is made. If the deduction cannot be made in the manner the spouses have claimed, the deduction is made primarily from the income of the spouse with higher earned income (after natural deductions) in state income taxation.

2. A taxpayer is entitled to deduct from his earned income (after natural deductions have been made) contributions to supplementary collective pen-sion benefits system organised through a pension fund, pension society or an insurance company. The deduction is 5 per cent of the salary or wages paid to the taxpayer by the employer who has arranged the benefits, but not more than 5,000 euros and not more the amount that the employer has paid for the sup-plementary pension benefits. The pension may be paid as an old-age pension when the insured person is 60 years old at the earliest.

Supplementary collective pension benefits mean a pension benefits system organised by the employer to a circle consisting of his employees. This circle has to be defined on the basis of groups within every industry or according to any other similar criterion and in such a way that it does not refer to any named or otherwise identified physical persons. The supplementary collective pension benefits system does not cover systems which are meant to be applied to only one employee of the employer at a time.

176Premiums for a voluntary pension insurance issued by an insurance institu-

tion resident in a non-EEA-State or having a permanent establishment in such a State are not deductible. However, if the insured person moves into Finland and has not been resident in Finland in the five years preceding the year of his removal, he is entitled to deduct the premiums for the year of removal and three following years if the premiums are based on an insurance taken out at least one year before the removal.

3. Premiums paid for a lump-sum pension or a separately granted disability pension are not deductible.

This applies also to premiums paid by a taxpayer for an individual voluntary pension insurance taken out for him by his employer. Premiums paid by a tax-payer for a voluntary pension insurance taken out by him are deducted from his investment income. If the taxpayer does not have sufficient investment income the exceeding part is deducted as a credit for the deficit (investment income deficit) from the tax on earned income, see 2.3.9.4.

Deductions and allowances granted in state income taxation

1) Deduction granted to sailors is 18 per cent of the total income derived on board a ship, up to 6,650 euros. The deduction is made from chargeable earned income after natural deduc tions.

2) The maximum amount of the pension allowance is the lowest taxable income of the pro gressive tax scale (13,100 euros) deducted from the full amount of national pension for single persons (in 2009 7,009.56 euros) multi plied by 3.65 and rounded up to the nearest ten euros (e.g. 3.65 * 7,009.56 euros – 13,100 euros = 12,484.894 euros, rounded up to 12,490 euros). The pen sion income is the upper limit. If the taxpayer’s net earned income exceeds the maximum pension allowance, the allowance is reduced by 46 per cent of the excess. If the net earned income ex ceeds 36,056 euros, the deduction is not granted.

Deductions and allowances granted in municipal income taxation

1) The earned income allowance is deducted from the earned income after natural deductions. The allowance is calculated on the basis of chargeable wages and salaries, earned income from work done and services provided to another person, dividend taxed as earned income, the earned income share of business profits which are to be apportioned and a partner’s earned income share of agricultural income and business profits from a partner-ship (the basis is the same as in the earned income allowance of state tax-ation). The allowance is 51 per cent of such total income ex ceed ing 2,500 euros and up to 7,230 euros and 28 per cent for the part exceeding 7,230 euros. If the taxpayer’s earned income after natural deductions exceeds

17714,000 euros, the amount of the allowance is reduced by 4.5 per cent of the excess. The maximum amount of the allowance is 3,570 euros. If the net earned income exceeds 93,333 euros, no deduction is assigned.

2) The deduction granted to sailors is 30 per cent of the total income derived on board a ship, up to 11,350 euros. This amount is in creased by 170 euros for every full calendar month in which the taxpayer has worked on board and the ship has been outside Finnish terri torial waters (i.e. the ‘cross-trade in crease’). The deduction is made from net earned income after the natural deductions have been made.

3) The maximum pension income allowance is the maximum amount of basic allowance (1,480 euros) deducted from the full amount of national pension for single persons (in 2009 7,009.56 euros) multiplied by 1.37 and rounded up to the nearest ten euros. The upper limit is the pension income. If the taxpayer’s net earned income exceeds the amount of maximum pension allowance, the allowance is reduced by 62 per cent of the excess. If the net earned income exceeds 19,744 euros, the deduction is not granted.

4) A disabled person’s allowance is 440 euros if the degree of disability is 100 per cent. In other cases, the allowance is made according to the degree of disability if it is at least 30 per cent. The maximum amount is also restricted by the rule that the allowance may not exceed the amount of other net earned income (income after natural deductions) than pension income. The last-mentioned restriction is not applied to persons who already received pen sion in 1982. The allowance is subtracted from earned income.

5) A student grant allowance is granted to taxpayers who have received a stu-dent grant (under a special law). The maximum is 2,600 euros but not more than the grant. The allowance is reduced by 50 per cent of the amount of earned income exceeding 2,600 euros and thus if the earned income is at least 7,800 euros the allowance is no longer granted. The allowance is sub-tracted from the earned income.

6) A basic allowance for individuals with a small income is granted provided they have been resident in Finland during the whole tax year. A maximum of 1,480 euros is granted when the earned income after pension income allowance, disabled person’s allowance and student grant allowance does not exceed 1,480 euros; if the amount of such earned income exceeds this total, the allowance is reduced by 20 per cent of the excess. The allowance is subtracted from the earned income.

178Appendix 4

Tax credits against state income tax 2009

1) Child maintenance credit is granted to a taxpayer who has paid maintenance for a minor on the basis of a legally binding agreement or a court decision. The tax credit is one-eighth of the maintenance paid, subject to a maximum of 80 euros for minor.

2) Disability credit is 115 euros for a person who has lived in Finland for the most part of the tax year if his degree of disability is 100 per cent. In other cases the credit is the part of 115 euros which corresponds to the degree of disability, if it is at least 30 per cent. Disability credit is set off against tax on earned income.

3) Study loan credit

Study loan credit is given to a taxpayer who has passed a qualifying examination within a prescribed period of time. Such person is entitled to deduct annually from his tax an amount corresponding to the instalment of a study loan that he has paid. The total maximum amount of deductions that are to be granted annually is 30 per cent of the loan capital that exceeds 2,500 euros. Loan capital is determined on the basis of a nine-month academic term and without capi-talizing interests.

The credit is first deducted (after other credits against tax and deficit in the category of investment income have been deducted) deductions from both the State taxes on investment income and earned income, and if the deduction exceeds the amount of those taxes it is deducted from the communal income tax, medical care contribution of employees’ health insurance contribution and church tax, following the principle of proportionality in all these cases. If the credit still cannot be deducted, the taxpayer is entitled to deduct the credit or credits (in the order in which they are incurred) over the next ten years from the corresponding taxes. The maximum period is in any case fifteen years after the year in which the taxpayer passed his examination.

The credit is also granted in cases where a taxpayer belongs to a study loan system of the Provincial Government of Åland or any EEA Member State.

It is up to the Social Insurance Institution to decide whether a taxpayer is entitled to the credit and what is the credit’s maximum amount.

1794) A credit for domestic work is granted on the basis of following types of domestic work:

– ordinary housekeeping

– nursing and provision of care and maintenance excluding health care services which are exempted from VAT

– repair and fundamental improvement of dwellings (excluding repair and installation of domestic appliances)

– installation, maintenance and guidance concerning equipment, software, security and telecommunications links relating to information and communication technology.

The work must be done in a dwelling or second residence (summer resi-dence) used by some of following persons: the taxpayer, his spouse, deceased spouse, their parents, adoption parents, foster parents and all their relatives in the direct line of ascent and their spouses.

The taxpayer is entitled to deduct

a) if he hires an employee:

– employers’ social security contribution and obligatory employment pension contribution

– accident insurance contribution

– unemployment insurance contribution

– group life insurance contribution

– 30 per cent of the wages

b) if he buys the service:

– 60 per cent of a non-salary remuneration paid to a non-profit-making organisation for ordinary housekeeping, nursing and provision of care and maintenance.

– 60 per cent of a non-salary re mu ne ration paid for work done or service provided by a person registered in the prepayment register.

The credit is granted on the basis of the deductions listed above. The maxi-mum annual credit is 3,000 euros, but the credit is granted only for that part of deductions which exceed 100 euros. The credit is not granted if other subsidies (excluding energy subsidies for changing heating systems in one-family houses)

180are paid for the same work. Work done by the taxpayer himself or by a person living in the same household does not entitle to the credit.

The credit is deducted primarily from state income tax. It is deducted from tax on earned income and tax on investment income in proportion of these taxes. In the case of tax on earned income the credit is deducted after other deductions and before the credit for the deficit against tax on earned income. If the credit exceeds the amount of state income tax, the exceeding part is deducted from municipal tax, nursing charge of health insurance and church tax in proportion.

The credit is granted to both spouses and according to their demand. If the demand cannot be accepted the credit is granted to the spouse with the higher state income tax (after credits against tax have been deducted). If the amount of credit exceeds the amount of tax the excess is transferred to the other spouse.

5) The earned income credit is deducted from (State) tax on earned income. If the credit exceeds the amount of tax, it is deducted (proportionally) from municipal tax, medical care contribution of the health insurance and church tax. The credit is calculated on the basis of chargeable wages and salaries, earned income from work done and services provided to another person, dividend taxed as earned income, earned income share of business profits which are to be apportioned and a partner’s earned income share of agricultural income and business prof-its from a partnership (the basis is the same as in the earned income allowance of municipal taxation). The credit is 5.2 per cent of such total income ex ceed ing 2,500 euros. If the taxpayer’s earned income after natural deductions exceeds 33,000 euros, the credit is reduced by 1.2 per cent of the excess. The maximum credit is 600 euros. The credit is given before other credits against tax on earned income in state taxation.

181Appendix 5

TABLE 12. Withholding tax rates

the following table gives only a general outline of the withholding tax rates (as a percentage and as whole numbers) on payments to foreign companies and non-resident aliens. The relevant agreement should be studied for the excep-tions included in the agreements. For his torical data, see 5.3.2.

Country Individualsand

companies

DividendsQualifying

Interestcompanies

Royalty

Argentina 15 10 15 3/5/10/15Armenia 10 5 10 5/10

Australia 15 5/0 10 5

Austria 10 0 0 5

Azerbaidzhan 10 5 10 5/10

Barbados 15 5 5 0/5

Belarus* 15 5 5 5

Belgium 15 5 10 0/5

Brazil 0 0 15 10/25/15

Bulgaria 10 10 0 0/5

Canada 15 10 10 0/10

China 0 0 10 10

Croatia 15 5 0 10

Czech 0 0 0 0/1/5/10

Denmark 15 0 0 0

Egypt 10 10 0 25

Estonia 5 0 10 5/10

Faroe Islands 15 0 0 0

France 0 0 10 0

Germany 15/25 10 0 0/5

Georgia* 10 0/5 0 0

Greece 13 13 10 0/10

Hungary 15 5 0 0/5

Iceland 15 0 0 0

India 0 0 10/0 15/10

Indonesia 15 10 10 10/15

Ireland 0/15 0/15 0 0

Israel 0 0 10 10

Italy 15 10 15 0/5

Japan 15 10 10 10

182Korea (Rep.) 15 10 10 10

Kosovo** 15 5 0 10Kyrgyzstan 15 5 10/0 5

Latvia 5 0 10 5/10

Lithuania 5 0 10 5/10

Luxembourg 15 5 0 0/5

Macedonia 15 0 10/0 0

Malaysia 15 5 15 5

Malta 15 5 0 0

Mexico 0 0 10/15 10

Moldova* 15 5 5 3/7

Montenegro 15 5 0 10Morocco 15 15 10 10

Netherlands 0 0 0 0

New Zealand 15 15 10 10

Norway 15 0 0 0

Pakistan 0 0 10/15 10

Philippines 28 15 15 15/25

Poland 0 0 0 0/10

Portugal 15 10 15 10

Rumania 0 0 5 2.5/5

Russia 12 5 0 0

Serbia** 15 5 0 10Singapore 10 5 5/0 5

Slovakia 0 0 0 1/5/10

Slovenia 15 5 5/0 5

South Africa 0 0 0 0

Spain 15 10 10 5

Sri Lanka 15 15 10 0/10

Sweden 15 0 0 0

Switzerland 10 0 0 0

Tanzania 20 20 15 20

Thailand 28 20/15 25/10 15

Turkey 20 15 15 10

Ukraine 0 0 5/10 0/5/10

United Arab Emirates 0 0 0 0

United Kingdom 0 0 0 0

United States 15 5/0 0 0

USSR 0 0 0 0

Uzbekistan 0 0 5 5/10

Vietnam 15/10 5 10/0 10

Yugoslavia 15 5 0 10

Zambia 15 5 15 0/5/15

** Formal exchange of notes concerning the application of the Agreement concluded between Finland and Yugoslavia is pending.

183Agreements with Belarus, Georgia and Moldova are applied as of 1st Jan-•uary 2009.

Interest paid to non-residents is exempt from withholding tax under the national legislation.

Withholding tax is not levied on divi dends paid to a company resident in an EU Member State (see Appendix 8), if the company directly owns at least 20 per cent of the capital of the Finnish distributing company. This rule applies only if the recipient of the dividend is a company mentioned in Article 2 of the EU Parent–Subsidiary Directive (90/435/EEC).

In the case of dividend, a qualifying company is usually a company with a holding of at least 25 per cent of the capital or at least 10 per cent of the voting power of the distributing com pany. In some treaties, a zero rate is applied with-out any such conditions. In treaties with Australia and United States, a zero rate is applied if the holding is at least 80 per cent of the voting power and certain extensive (anti-abuse) conditions are fulfilled. The following new or revised double taxation agreements or protocols have been signed:

Country Individualsand

companies

DividendsQualifyingcompanies

Interest Royalty

Kazakstan 5 15 10 10

Morocco 0 0 10 10

Philippines 5 0 15 15/25

A Protocol amending the Multilateral Nordic Treaty is applied as of 1st Janu-ary 2009. It doesn’t include any changes concerning rates applied on dividend, interest or royalty.

184Appendix 6

Taxation of companies and their non-resident shareholders when there is no double taxation agreement bet ween finland and the state of residence of the share holders

I Rates of income tax (corporate bodies)

Corporate income tax rate 26 %

II Taxation of the company

Profits 1,000Corporate income tax 26 % 260

The total tax burden is the corporate income tax 26 %, i.e. 260

III Taxation of non-resident shareholder

Gross amount of dividends received 74028 % final withholding tax less 207.2Remittable abroad 532.8

IV Total effective tax burden for non-resident shareholder

Company profits 1,000Corporate income tax (cf. II above) 260Shareholder’s tax (cf. III above) 207.2Total amount of tax (II + III) 467.2

Total effective tax burden: 467.2 x 100 = 46,72 % 1,000

185Appendix 7

GlossaryEnglish - Finnish - Swedish

Act on Assessment Procedure of 18 December 1995 (1558/1995) – Verotusmenettelystä annettu laki – Lag om beskattningsförfarande;

Act on Central Tax Board of 26 July 1996 (535/1996) – Laki keskusverolautakunnasta – Lag om centralskatte nämn den;

Act on Credit Institutions of 9 February 2007 (121/2007) – Laki luottolaitostoiminnasta – Kredit-institutslagen;

Act on Fairway Dues of 22 December 2005 (1122/2005) – Väylämaksulaki – Lag om farled-savgift;

Act on Contributions between Affiliated Com panies of 21 November 1986 (825/1986) – Laki konserniavustuk ses ta verotuksessa – Lag om koncernbidrag vid beskattningen;

Act on Elimination of International Double Taxation of 18 December 1995 (1552/1995) – Laki kansainvälisen kaksinkertaisen verotuksen poistamisesta – Lag om undanröjande av interna-tionell dubbelbeskattning;

Act on Exceptions for the Province of Åland with respect to Valued-added Tax Legislation and Excise Tax Legislation of 30 December 1996 (1266/1996) – La ki Ahvenanmaan maakuntaa koske-vista poikkeuksista arvonlisävero- ja valmis te verolainsäädäntöön – Lag om undan tag för land-skapet Åland i fråga om mer vär des skatte- och accislagstiftningen;

Act on Excise Duty on Alcohol and Alcoholic Beverages of 29 December 1994 (1471/1994) – Laki alkoholi- ja alkoholijuomaverosta – Lag om accis på alkohol och alkoholdrycker;

Act on Excise Duty on Certain Beverage Packages of 3 December 2004 (1037/2004) – Laki eräi-den juomapakkausten valmisteverosta – Lag om accis på vissa dryckesförpackningar

Act on Excise Duty on Electricity and Certain Fuels of 30 December 1996 (1260/1996) – Laki sähkön ja eräiden polttoaineiden valmisteverosta – Lag om accis på elström och vissa bränslen;

Act on Excise Duty on Liquid Fuels of 29 December 1994 (1472/1994) – Laki nestemäisten polt-toaineiden valmis te ve rosta – Lag om accis på flytande bräns len;

Act on Excise Duty on Soft Drinks of 29 December 1994 (1474/1994) – Laki makeis- ja virvoitus-juomaverosta – Lag om sötsaks- och läskedrycksaccis;

Act on Excise Duty on Tobacco of 29 December 1994 (1470/1994) – Laki tupakkaverosta – Lag om tobaksaccis;

Act on Fire Protection Fund of 11 April 2003 (306/2003) – Palosuojelurahastolaki – Lag om brandskyddsfonden;

Act on Fishing of 16 April 1982 (286/1992) – Kalastuslaki – Lag om fiske;

Act on Forest Management Asso ci ations of 10 July 1998 (534/1998) – Laki met sänhoitoyhdistyksistä – Lag om skogs vårdföreningar;

Act on Fuel Fee for Private Pleasure Boats of 21 December 2007 (1037/2007) – Laki yksityisestä huvialuksesta suoritettavasta polttoainemaksusta – Lag om bränsleavgift som betalas för pri-vata fritidsbåtar;

186Act on Game Management Fee and Hunting Licence Fee of 28 June 1993 (616/1993) – Laki riistan-hoitomaksusta ja pyyntilupamaksusta – Lag om jakt vårdsavgift och jaktlicensavgift;

Act on Municipal Tax on Real Property of 20 July 1992 (654/1992) – Kiinteistöverolaki – Fas-tighetsskattelagen;

Act on Oil Damage Fund of 30 December 2004 (1406/2004) – Laki öljysuojarahastosta – Lag om oljeskyddsfonden;

Act on Oil Waste Duty of 5 December 1986 (894/1986) – Laki öljyjätemak susta – Lag om olje-fallsavgift;

Act on the Openness of Government Activities of 21 May 1999 (621/1999) – Laki viranomaisten toiminnan julkisuudesta – Lag om offentlighet i myndigheternas verksamhet;

Act on Pharmacy Fee of 21 February 1946 (148/1946) – Laki apteekkimak susta – Lag om apotek-savgift;

Act on Postal Fee for Securing the Postal Ser vices in Rural Areas on 6 April 2001 (313/2001) – Laki haja-asutusalueiden postitoiminnan turvaamiseksi perittä väs tä maksusta – Lag om avgift för trygg an de av postförmedling i glesbyg den;

Act on Publicity and Secrecy of Tax Information of 30 December 1999 (1346/1999) – Laki vero-tustietojen julkisuudesta ja salassapidosta – Lag om offentlighet och sekretess i fråga om beskat-tningsuppgifter;

Act on Refunding of Excise Duties for Energy Products Used in Agriculture of 21st of July 2006 – Laki maataloudessa käytettyjen eräiden energiatuotteiden valmisteveron palautuksesta – Lag om återbäring av accis på vissa energiprodukter som använts inom jordbruket (603/2006);

Act on Seamen’s Welfare and Rescue Levy of 8 May 1936 (189/1936) – Laki lästimaksusta – Lag om lästavgift;

Act on Surtax and Penal Interest of 18 December 1995 (1556/1995) – Laki ve ron lisäyksestä ja viivästyskorosta – Lag om skattetillägg och förseningsränta;

Act on Tax on Certain Insurance Pre miums of 20 December 1966 (664/1966) – Laki eräistä vaku-utusmaksuista suo ritettavasta verosta – Lag om skatt på vissa försäkringspremier;

Act on Tax on Lottery Prizes of 26 June 1992 (552/1992) – Arpajaisverolaki – Lot teriskattelag;

Act on Tax Withheld at Source from In terest of 28 December 1990 (1341/1990) – Laki korkotulon lähdeverosta – Lag om källskatt på ränteinkomst;

Act on the Taxation of Business Profits and Income from Professional Activities of 24 June 1968 (360/1968) – Laki elinkeinotulon verottamisesta – Lag om beskattning av inkomst från närings-verk samhet;

Act on the Taxation of Farm Income of 15 December 1967 (543/1967) – Maati la talouden tulovero-laki – Inkomst skat telag för gårdsbruk;

Act on the Taxation of Non-residents’ Income of 11 August 1978 (627/1978) – Laki rajoitetusti verovelvollisen tulon verottamisesta – Lag om beskattning av be gränsat skattskyldig för inkomst;

Act on the Taxation of Shareholders in Cont rolled Foreign Companies 16 De cember 1994 (1217/1994) – Laki ulko mais ten väliyhteisöjen osakkaiden verotuksesta – Lag om beskattning av delägare i utländska bassamfund;

Act on Valuation of Assets for Taxation of 22 December 2005 (1142/2005) – Laki varojen arvos-tamisesta verotuksessa – Lag om värdering av tillgångar vid beskattningen;

Act on Withholding Tax for Foreign Wage Earners with Special Expertise of 18 December 1995 (1551/1995) – Laki ulkomailta tulevan palkansaajan lähdeverosta – Lag om källskatt för lönta-gare från utlandet;

187Book-keeping Act of 30 December 1997 (1336/1997) – Kirjanpitolaki – Bok fö rings lagen;

Car Tax Act of 29 December 1994 (1482/1994) – Autoverolaki – Bilskatte lagen;

Dog Tax Act of 29 June 1979 (590/1979) – Koiraverolaki – Lag om hund skatt;

Excise Taxation Act of 29 December 1994 (1469/1994) – Valmisteverotuslaki – Lag om påförande av accis;

Fuel Fee Act of 30 December 2003 (1280/2003) – Laki polttoainemaksusta – Lag om bräns-leavgift;

Health Insurance Act of 4 July 1963 (364/1963) – Sairausvakuutuslaki – Sjuk försäkringslagen;

Income Tax Act of 30 December 1992 (1535/1992) – Tuloverolaki – Inkomst skattelagen;

Inheritance and Gift Tax Act of 12 July 1940 (378/1940) – Perintö- ja lahjaverolaki – Lag om skatt på arv och gåva;

Prepayment Act of 20 December 1996 (1118/1996) – Ennakkoperintälaki – Lag om förskottsupp-börd;

Securities Markets Act of 26 May 1989 (495) – Arvopaperimarkkinalaki – Värdepappersmarknad-slagen;

Tax Accounting Act of 10 July 1998 (532/1998) – Verontilityslaki – Lag om skatteredovisning;

Tax Administration Act of 18 December 1995 (1557/1995) – Verohallintolaki – Lag om skatte-förvaltningen;

Tonnage Tax Act of 5 June 2002 (476/2002) – Tonnistoverolaki – Tonnageskattelag;

Transfer Tax Act of 29 November 1996 (931/1996) – Varainsiirtoverolaki – Lag om överlå-telseskatt;

Value-added Tax Act of 30 December 1993 (1501/1993) – Arvonlisäverolaki – Mervärdesskat-telagen;

Vehicle Tax Act of 30 December 2003 (1281/2003) – Ajoneuvoverolaki – Lag om fordonsskatt;

Waste Tax Act of 28 June 1996 (495/1996) – Jäteverolaki – Avfallsskattelag;

Åland Municipal Income Tax Act of 19 June 1993 (37/1993) – Kommunalskattelagen för land-skapet Åland;

Bank of Finland (Central Bank) – Suomen Pankki – Finlands Bank;

Central Tax Board – Keskusverolau ta kunta – Centralskattenämnden;

District customs house – Piiritullikamari – Distriktstullkammare;

Local tax office – Verotoimisto – Skatte byrå;

National Board of Customs – Tullihal litus – Tullstyrelsen;

National Board of Taxes – Verohallitus – Skattestyrelsen;

Regional tax office – Lääninvero vi ras to – Länsskatteverk;

Social Insurance Institution – Kansaneläkelaitos – Folkpensionsanstalten;

Supreme Administrative Court – Korkein hallinto-oikeus – Högsta förvalt ningdomstolen;

Vehicle Administration – Ajo neu vohallintokeskus – Fordons för valt ningscentralen

188Appendix 8

Abbreviations, EU Member States, EEA Member States

cl – centilitre

CN-code - Combined Nomenclature code

g – gram(me)

kg – kilogram(me)

kWh – kilowatt-hour

l – litre

MWh – megawatt-hour

MVA – megavoltampere

nm3 – normal cubic metre

1. EU Member States

Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Fin-land, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Lux-embourg, Malta, Netherlands, Poland, Portugal, Rumania, Slovak Republic, Slovenia, Spain, Sweden and United Kingdom.

2. EEA Member States

Those mentioned in 1. and Iceland, Liechtenstein and Norway.

189Appendix 9

IndexAccident insurance contribution 2.1.6Accruals basis 2.5.7Advance rulings - income taxation 9.1.3- other taxes 9.2.2Affiliated company 2.5.11Agriculture 2.3.6.1Allocation of business expenses 2.5.7- accruals basis 2.5.7- buildings and other constructions 2.5.7- declining balance method 2.5.7- degree of manufacture 2.5.7- depreciations, 2.5.6- FIFO 2.5.7- fixed assets 2.5.7- inventories 2.5.7- investments 2.5.7- proceeds of sales 2.5.7- replacement reserve 2.5.7Allocation of income of individuals 2.3.1Amendment of assessment 9.1.3Appeals- income taxation 9.1.3- other taxes 9.2.2Artistes 2.4.4, 5.2.1, 5.2.2.1, 6.1, 6.9, 6.13 (VAT)Assessment year 9.1.2Associated enterprises 5.3.2Arm’s length principle 5.4

Breweries 7.8Buildings and other constructions - depreciations 2.5.6Business profits 2.5, 2.5.1

Calculation of assets 2.3.4.2Calculation of inheritance and gift tax (change of generation rules) 4.5.2Capital gains 2.3.5, 2.3.6.1, 2.3.6.2, 2.5.5Capital losses 2.3.5Cars with low exhaust emissions 8.1.2CFC 2.5.13Child maintenance credit 2.4.3 ECompany’s form 2.5.12Consular posts, see DiplomatsControlled foreign company 2.5.13Corporate bodies 2.2.4Credit for foreign direct taxes 5.1Credit for domestic work 2.4.3 E, Appendix 4Credit method 5.3.1.2

190Declining balance method 2.5.7Deductible money donations (individuals) 2.4.3 BDeductible money donations (corporate bodies) 2.5.6Deduction of foreign direct taxes 5.1Deductions and allowances- business taxation 2.5.5- in the category of earned income 2.4.3, Appendix 3- in the category of investment income 2.3.9Degree of manufacture 2.5.6Demergers (divisions) 2.5.12.2Depreciation allowances- as a basis for employers’ social se¬cu¬rity contributions 2.1.6Diplomats- car tax 8.1.2- inheritance and gift tax 4.3.3, 4.4- municipal tax on real property 8.2- remunerations and compensations 2.4.2- residence (Finnish diplomats) 2.2.2- serving in Finland 2.2.7- VAT 6.12Dissolutions 2.5.12.2Dividends- business taxation 2.5.3.1- domestic situations 2.5.3.2- dividends from EU-countries 2.5.3.3- dividends from non-EU countries 2.5.3.4- partnerships 2.3.6.2- taxation of individuals 2.3.4- withholding tax 5.2.2.1, Appendix 5- zero-rate tax 5.2.2.1, 5.3.2, Appendix 5Divisions 2.5.12.2Domestic work 2.4.3 (E) Appendix 4Donations (individuals) 2.4.3 BDonations (corporate bodies) 2.5.6Double taxation agreements 5.3.2

EC Council (Merger) Directive 90/434/EEC 2.5.12.2EC Council (Parent–Subsidiary) Directive 90/435/EEC 2.3.4.3, 2.5.3.3, 2.5.5, 5.2.2.1, Appendix 5EC Council (Assistance in Recovery) Directive 76/308/EEC 5.3.2EC Council (Mutual Assistance) Directive 77/799/EEC 2.5.13.2, 5.2.2.1–2, 5.3.2EC Council (Excise Duty) Directive 92/12/EEC 7.1EEA Member States Appendix 8Electronic invoicing 6.13, 6.13.4Electronic service 6.13, 6.14Employee investment fund 2.2.7, 2.4.1–2, 2.5.6, 3.2, 5.2.1, 5.2.2.1Employees’ insurance contributions 2.1.6Employers’ insurance and social secu¬rity contributions 2.1.6Employment abroad 2.1.6, 2.4.2, 5.1Energy 7.11Energy intensive enterprises 7.11.3EU Council (Savings) Directive 2003/48/EC 5.2.2.1, 5.3.2EU Council (Interest and Royalty) Directive 2003/49/EC 5.2.2.1EU Member States Appendix 8EU organs 8.7.1

191European Economic Area Appendix 8European Economic Interest Grouping 2.2.5Exchange gains 2.3.2, 2.3.5Exchanges of shares 2.5.12.2Excise duties- declaration and payment 7.6- duty suspension arrangement 7.1- exemptions 7.4, 7.7–7.11- medicine 7.7, 7.8- reactive reagent 7.11.1- retail containers 7.10- small breweries 7.8- time and rate of charge of duty 7.3- travellers’ allowances 7.5Exemption method 5.3.1.3

Farmers’ social security contributions 2.1.6FIFO 2.5.7Filing of the income tax return 9.1.2Finnish nationals (and non-nationals) 2.2.2, 2.2.7, 2.4.2, 4.3.3, 5.2.2.2–3, 8.1.2–3 Fire insurance levy 8.12Fishing management fee 8.18Fixed assets 2.3.6.2, 2.3.7, 2.5.2, 2.5.3.2–4, 2.5.5–7, 2.5.12.1, Appendix 14Flat 2.2.7, 2.3.4.2, 2.3.5, 2.3.6.2, 2.4.3, 2.5.14, 5.2.1, 8.7.1, Appendix 3Food (VAT rate) 6.9Foreign currency 2.3.5, 2.3.9.1Foreign dividends 2.5.3.3–4Foreign wage earners with special expertise 5.2.2.3Forestry 2.3.3.1, 2.3.2, 2.3.5, 2.3.8.2–3, 2.4.3, 2.5.6, 4.5.2, 5.2.1, 8.14. 9.1.2Forward contracts 2.3.5Free union 2.2.3.1, 4.1, Appendix 2

Gains on foreign currency 2.3.5Game management fee 8.17Gas 2.5.7, 6.5, 6.13.1, 7.1, 7.11.1–2, 7.11.2.2, 7.11.3, 8.1.3–4, Appendix 11Gold 6.3, 6.6. 6.15Group life insurance 2.1.6, Appendix 4Guarantee provision 2.5.8Guarantee fund 2.2.7, 2.5.6–7, 8.7.1

Health insurance contribution 2.1.6, 2.3.9.2, 2.3.9.4, 2.4.2, 3.1, 5.2.2.3, Appen-dix 4Hunting licence fee 8.17

Incentives, see Tax incentives (2.5.10)Income from forestry 2.3.8.2Income from real property 2.3.5, 2.3.8.3 Income from sports 2.4.4Income spreading 2.4.4Insurance 2.1.6, 2.2.3.1, 2.3.8.4–2.3.8.5, 2.3.9.1–2.3.9.2, 2.3.9.4, 2.4.1–3, 2.5.6–7, 3.1, 4.3.1, 4.4, 5.2.1, 5.2.2.1–3, 6.3, 6.6, Appendices 3 and 4Interest income 2.3.3, 5.2.1, 5.3.2Interest expenses 2.3.9.1Interest received by non-residents 2.2.1, 5.2.2.1Investment fund 2.2.4, 2.2.7, 2.3.2, 3.2, 5.2.1, 5.2.2.1

192Investment income share 2.3.2, 2.3.6, 2.3.6.1–2, 2.3.7, 2.3.8.2, 2.4.3Investments 2.5.2 (footnote), 2.5.6 Irrevocable order for the purchase of goods 2.5.8

Leasing 2.2.2, 5.2.2.2, 5.3.2, 6.5Limited tax liability 2.2.1Loans taken up by shareholders 2.3.4.2Locally employed persons 2.4.2Losses 2.3.9, 2.3.9.3, 2.5.9, 2.5.9.2–3, 2.5.13.2, Appendix 14

Married persons 2.2.3.1Members of Parliament 2.4.2Mergers 2.5.12.2Minors 2.2.3.2Mutual fund, see Investment fund

Nominee register 5.2.2.2Non-profit-making organisations 2.2.7, 2.3.8.3, 4.3.3, 8.2, Appendix 4Non-resident 2.2.2

OECD/Council of Europe Convention on Mutual Assistance in Tax Matters 5.3.2Officials of the United Nations 2.2.7, 2.4.2, 4.3.3Oil waste duty 8.15Oil damage duty 8.16Operating reserve 2.5.8Options 2.3.5, 2.4.2, 2.5.7Ordinary credit 4.3.2, 5.3.1.2, 5.3.2

Partners- deduction from earned income 2.3.6.2- flat used as a dwelling of a partner 2.3.6.2- loans taken up by partners 2.3.6.2- social security contributions 2.1.6Partnerships- dividends from shares belonging to partnerships 2.3.6.2- distributions made by partnerships 2.5.4- general principles 2.2.5- income from partnerships 2.3.6.2- remunerations paid to partners 2.2.5 - transfer tax 8.7.3Penal interest 9.1.2Permanent establishment - definition, 2.2.6- in mergers, divisions, transfers of assets 2.5.12.2- tax liability 2.2.1- withholding tax 5.2.2.1–2Permanent home (capital gains) 2.3.5Pensions in double taxation agreements 5.3.2Pension insurance contributions 2.1.6Pharmacy fee 8.13Postal fee 8.10Pre-filled tax proposal 9.1.2Province of Åland 10Provision for bad, doubtful debts 2.5.8

193Radio, television broadcasting service 6.9, 6.13.1Rates for withholding tax 5.2.2.1Real estate companies 2.5.14, 5.3.2Removal goods 8.1.2Reserves and provisions- guarantee provision 2.5.8- irrevocable order for the purchase of goods 2.5.8- operating reserve 2.5.8- provision for bad and doubtful debts 2.5.8- replacement reserve 2.5.7Residents 2.2.2Retired persons - national pension contributions 2.1.6- health insurance contributions 2.1.6- deductions and allowances 2.4.3 C and D, Appendix 3Royalties 5.3.2Rural areas 8.10

Seamen’s welfare and rescue levy 8.14Security lending contracts 2.5.4Shareholder loan 2.3.2, 2.3.4.2, 2.3.9.1Six months’ rule 2.4.2Social security contributions 2.1.6Source rules 5.2.1Sportsperson’s fund 2.4.4Sportspersons 2.4.4, 5.2.1, 5.2.2.1Spouses 2.2.3.1Substitute dividend 2.3.4.4, 2.5.3.1. 2.5.6, 5.2.2.1Supplementary payments 3.1Statistics 1.2Students 2.4.3, Appendices 3 and 4Subsequent disposal of property 4.5.3Surtax 9.1.2

Tax credit - for the investment income deficit 2.3.9.4- child maintenance credit 2.4.3 E, Appendix 4- disability credit 2.4.3 E, Appendix 4- credit for domestic work 2.4.3 E, Appendix 4- credit for study loans 2.4.3 E, Appendix 4- earned income credit 2.4.3 E, Appendix 4Tax incentives 2.5.10, 5.1Tax sparing 5.3.2Tax year 9.1.2Taxation of municipalities 2.2.7 Taxation of religious communities 2.2.7Teachers 5.3.2Telecommunication service 6.13.1Temporary deduction for money donations (individuals) 2.4.3 BThree-year rule 2.2.2Training fund 2.4.4Transfers of assets 2.5.12.2Transfer of real property 8.7.2Transfer of securities 8.7.3Transfer of taxes to another Nordic country 3.1Transferring company 2.5.12.2

194Undistributed estates of deceased persons 2.2.1–2, 2.2.4–5, 2.5.4Unemployment fund 2.2.7, 2.4.3Unemployment insurance contribution 2.1.6Unilateral relief 5.3.1Unit trust, see Investment fundUnited Nations, see Officials of the United NationsUnlimited tax liability 2.2.1

VAT- annual turnover criterion 6.3- construction 6.7- corporate bodies for promoting the public good 6.3- deductions 6.10- exemptions 6.5, 6.6- exportation 6.13, 6.13.3- foreign enterprises 6.4- foreign trade 6.13- general structure 6.1, 6.2- government bodies 6.3- group registration 6.3- importation 6.13.3.- intra-Community acquisition and supply 6.13.2- municipal authorities 6.3- own consumption 6.5- persons liable to tax 6.1- place of transaction 6.13.1- procedure 6.14- rates 6.9- real property 6.5, 6.7- refunds 6.12- reindeer owners 6.3- services related to real property 6.7- taxable amount 6.8- taxable transactions 6.5Vehicle tax 8.1.3Voluntary pension insurance 2.4.3 B

Waste 8.9Waste tax 8.9Works of art 6.1, 6.8, 6.9, 6.14

Zero-rate tax 5.3.2

Åland 10

195Appendix 10

Addresses

Helsinki District Customs House: Helsingin piiritullikamari, Vilhovuorenkatu 12 B, 00580 Helsinki; tel.: 09-6141 (+35896141).

Helsinki Tax Office: Helsingin verotoimisto, Rajatorpantie 8 A Vantaa (Myyrmäki); Postal adress PL BOX 400, 00052 VERO; tel.: 731120; telefax: 7311 2791. Also: Vuorikatu 14, 00100 Helsinki and Itäkatu 5 00930 Helsinki and Opastinsilta 12 S (on street level), Helsinki.

National Board of Customs: Tullihal litus, Erottajankatu 2, 00120 Hel-sinki; Postal adress: PL 512, 00101 Helsinki; tel.: 09-6141 (+35896141). http://www.tulli.fi; kirmo@tulli.fi.

National Board of Taxes: Verohallitus, Haapaniemenkatu 4 A 00530 Helsinki; Postal address: PL BOX 325, 00052 VERO Helsinki; tel.: 731136; telefax: 7311 3595; http://www.vero.fi.

Administrative Court of Helsinki: Helsingin hallinto-oikeus, Ratapihantie 9, Postal address: PL BOX 120 00521 HELSINKI; 120, 00521 Helsinki; tel.: 010 36 42000; telefax: 010 36 42079. e-mail: helsinki.hao@om.fi

Uusimaa Regional Tax Office: Uudenmaan verovirasto, Ratapihantie 9, Helsinki; Postal Address: PL1, 00052 VERO; tel.: (09) 731120; telefax: 7311 4395.

Vehicle Administration Centre: Ajo neu vo hallintokeskus, Hakaniemenranta 6, 00530 Helsinki; Postal address: PL 120, 00101 Helsinki; tel.: 020 696 300; telefax: 09 6185 3600; http://www.ake.fi/.

When calling from outside Finland the number for Helsinki Tax Office is 358 (the Finland country code) 9 (Helsinki and Uusimaa) 731120.

196Appendix 11

TABLE 13. Rates of excise duty on liquid fuels, electricity and certain energy sources 2009 (with product group numbers in brackets)

Unit Basic duty

Additionalduty

Strategic stockpilefee

PETRoL

reformulated and with extremely low sulphur content (11) cent/l 57,24 4,78 0,68

normal grade (21) cent/l 59,89 4,78 0,68

GAS oIL USED AS PRoPELLANT

reformulated with extremely low sulphur content (31) cent/l 30,67 5,38 0,35

normal grade (41) cent/l 33,32 5,38 0,35

Gas oil for commercial, industrial

and heating purposes (51) cent/l 2,94 5,41 0,35

Heavy fuel oil (61) cent/kg - 6,42 0,28

Kerosene (71) cent/l 33,32 5,38 0,35

Aviation petrol (81) cent/l 37,54 4,78 0,68

ELECTRICITy

category I (households, services and agriculture) (1) cent/kWh - 0,870 0,013

category II (industry, glasshouse cultivation) (2) cent/kWh - 0,250 0,013

Coal, lignite (3) euro/tonne - 49,32 1,18

Natural gas (5) cent/MWh - 2,016 0,084

Pine oil (6) cent/kg 6,7 - -

197

Total weight (kilograms) Co2–emissions(g/km)

Tax rateother than diesel Diesel

At most 591 at most 994 at most 60 12,2592–600 995–1003 61 12,3601–609 1004–1012 62 12,4610–618 1013–1021 63 12,6619–627 1022–1030 64 12,7628–636 1031–1039 65 12,8637–645 1040–1048 66 12,9646–654 1049–1057 67 13,1655–663 1058–1066 68 13,2664–672 1067–1075 69 13,3673–681 1076–1084 70 13,4682–690 1085–1093 71 13,5691–699 1094–1102 72 13,7700–708 1103–1111 73 13,8709–717 1112–1120 74 13,9718–726 1121–1129 75 14,0727–735 1130–1138 76 14,2736–744 1139–1147 77 14,3745–753 1148–1156 78 14,4754–762 1157–1165 79 14,5763–772 1166–1174 80 14,6773–781 1175–1183 81 14,8782–790 1184–1192 82 14,9791–799 1193–1202 83 15,0800–808 1203–1211 84 15,1809–817 1212–1220 85 15,3818–826 1221–1229 86 15,4827–835 1230–1238 87 15,5836–844 1239–1247 88 15,6845–853 1248–1256 89 15,7854–862 1257–1265 90 15,9863–871 1266–1274 91 16,0872–880 1275–1283 92 16,1881–889 1284–1292 93 16,2890–898 1293–1301 94 16,3899–907 1302–1310 95 16,5908–916 1311–1319 96 16,6917–925 1320–1328 97 16,7926–934 1329–1337 98 16,8935–943 1338–1346 99 17,0944–952 1347–1355 100 17,1953–961 1356–1364 101 17,2962–970 1365–1373 102 17,3971–979 1374–1382 103 17,4980–988 1383–1391 104 17,6989–997 1392–1400 105 17,7998–1006 1401–1409 106 17,81007–1015 1410–1418 107 17,91016–1024 1419–1427 108 18,11025–1033 1428–1436 109 18,21034–1042 1437–1445 110 18,31043–1051 1446–1454 111 18,41052–1060 1455–1463 112 18,5

Appendix 12

TABLE 14. Car tax rates I

198

1061–1069 1464–1472 113 18,71070–1078 1473–1481 114 18,81079–1087 1482–1490 115 18,91088–1096 1491–1499 116 19,01097–1105 1500–1508 117 19,21106–1114 1509–1517 118 19,31115–1123 1518–1526 119 19,41124–1132 1527–1535 120 19,51133–1141 1536–1544 121 19,61142–1150 1545–1553 122 19,81151–1159 1554–1562 123 19,91160–1168 1563–1571 124 20,01169–1177 1572–1580 125 20,11178–1186 1581–1589 126 20,31187–1195 1590–1598 127 20,41196–1204 1599–1607 128 20,51205–1213 1608–1616 129 20,61214–1222 1617–1625 130 20,71223–1231 1626–1634 131 20,91232–1240 1635–1643 132 21,01241–1249 1644–1652 133 21,11250–1258 1653–1661 134 21,21259–1267 1662–1670 135 21,41268–1276 1671–1679 136 21,51277–1285 1680–1688 137 21,61286–1295 1689–1697 138 21,71296–1304 1698–1706 139 21,81305–1313 1707–1715 140 22,01314–1322 1716–1725 141 22,11323–1331 1726–1734 142 22,21332–1340 1735–1743 143 22,31341–1349 1744–1752 144 22,41350–1358 1753–1761 145 22,61359–1367 1762–1770 146 22,71368–1376 1771–1779 147 22,81377–1385 1780–1788 148 22,91386–1394 1789–1797 149 23,11395–1403 1798–1806 150 23,21404–1412 1807–1815 151 23,31413–1421 1816–1824 152 23,41422–1430 1825–1833 153 23,51431–1439 1834–1842 154 23,71440–1448 1843–1851 155 23,81449–1457 1852–1860 156 23,91458–1466 1861–1869 157 24,01467–1475 1870–1878 158 24,21476–1484 1879–1887 159 24,31485–1493 1888–1896 160 24,41494–1502 1897–1905 161 24,51503–1511 1906–1914 162 24,61512–1520 1915–1923 163 24,81521–1529 1924–1932 164 24,91530–1538 1933–1941 165 25,01539–1547 1942–1950 166 25,11548–1556 1951–1959 167 25,31557–1565 1960–1968 168 25,41566–1574 1969–1977 169 25,51575–1583 1978–1986 170 25,61584–1592 1987–1995 171 25,71593–1601 1996–2004 172 25,91602–1610 2005–2013 173 26,01611–1619 2014–2022 174 26,1

Total weight (kilograms) Co2–emissions(g/km)

Tax rateother than diesel Diesel

199

1620–1628 2023–2031 175 26,21629–1637 2032–2040 176 26,41638–1646 2041–2049 177 26,51647–1655 2050–2058 178 26,61656–1664 2059–2067 179 26,71665–1673 2068–2076 180 26,81674–1682 2077–2085 181 27,01683–1691 2086–2094 182 27,11692–1700 2095–2103 183 27,21701–1709 2104–2112 184 27,31710–1718 2113–2121 185 27,51719–1727 2122–2130 186 27,61728–1736 2131–2139 187 27,71737–1745 2140–2148 188 27,81746–1754 2149–2157 189 27,91755–1763 2158–2166 190 28,11764–1772 2167–2175 191 28,21773–1781 2176–2184 192 28,31782–1790 2185–2193 193 28,41791–1799 2194–2202 194 28,51800–1808 2203–2211 195 28,71809–1818 2212–2220 196 28,81819–1827 2221–2229 197 28,91828–1836 2230–2238 198 29,01837–1845 2239–2247 199 29,21846–1854 2248–2257 200 29,31855–1863 2258–2266 201 29,41864–1872 2267–2275 202 29,51873–1881 2276–2284 203 29,61882–1890 2285–2293 204 29,81891–1899 2294–2302 205 29,91900–1908 2303–2311 206 30,01909–1917 2312–2320 207 30,11918–1926 2321–2329 208 30,31927–1935 2330–2338 209 30,41936–1944 2339–2347 210 30,51945–1953 2348–2356 211 30,61954–1962 2357–2365 212 30,71963–1971 2366–2374 213 30,91972–1980 2375–2383 214 31,01981–1989 2384–2392 215 31,11990–1998 2393–2401 216 31,21999–2007 2402–2410 217 31,42008–2016 2411–2419 218 31,52017–2025 2420–2428 219 31,62026–2034 2429–2437 220 31,72035–2043 2438–2446 221 31,82044–2052 2447–2455 222 32,02053–2061 2456–2464 223 32,12062–2070 2465–2473 224 32,22071–2079 2474–2482 225 32,32080–2088 2483–2491 226 32,52089–2097 2492–2500 227 32,62098–2106 2501–2509 228 32,72107–2115 2510–2518 229 32,82116–2124 2519–2527 230 32,92125–2133 2528–2536 231 33,12134–2142 2537–2545 232 33,22143–2151 2546–2554 233 33,32152–2160 2555–2563 234 33,42161–2169 2564–2572 235 33,62170–2178 2573–2581 236 33,7

Total weight (kilograms) Co2–emissions(g/km)

Tax rateother than diesel Diesel

200

2179–2187 2582–2590 237 33,82188–2196 2591–2599 238 33,92197–2205 2600–2608 239 34,02206–2214 2609–2617 240 34,22215–2223 2618–2626 241 34,32224–2232 2627–2635 242 34,42233–2241 2636–2644 243 34,52242–2250 2645–2653 244 34,62251–2259 2654–2662 245 34,82260–2268 2663–2671 246 34,92269–2277 2672–2680 247 35,02278–2286 2681–2689 248 35,12287–2295 2690–2698 249 35,32296–2304 2699–2707 250 35,42305–2313 2708–2716 251 35,52314–2322 2717–2725 252 35,62323–2331 2726–2734 253 35,72332–2340 2735–2743 254 35,92341–2350 2744–2752 255 36,02351–2359 2753–2761 256 36,12360–2368 2762–2770 257 36,22369–2377 2771–2780 258 36,42378–2386 2781–2789 259 36,52387–2395 2790–2798 260 36,62396–2404 2799–2807 261 36,72405–2413 2808–2816 262 36,82414–2422 2817–2825 263 37,02423–2431 2826–2834 264 37,12432–2440 2835–2843 265 37,22441–2449 2844–2852 266 37,32450–2458 2853–2861 267 37,52459–2467 2862–2870 268 37,62468–2476 2871–2879 269 37,72477–2485 2880–2888 270 37,82486–2494 2889–2897 271 37,92495–2503 2898–2906 272 38,12504–2512 2907–2915 273 38,22513–2521 2916–2924 274 38,32522–2530 2925–2933 275 38,42531–2539 2934–2942 276 38,62540–2548 2943–2951 277 38,72549–2557 2952–2960 278 38,82558–2566 2961–2969 279 38,92567–2575 2970–2978 280 39,02576–2584 2979–2987 281 39,22585–2593 2988–2996 282 39,32594–2602 2997–3005 283 39,42603–2611 3006–3014 284 39,52612–2620 3015–3023 285 39,72621–2629 3024–3032 286 39,82630–2638 3033–3041 287 39,92639–2647 3042–3050 288 40,02648–2656 3051–3059 289 40,12657–2665 3060–3068 290 40,32666–2674 3069–3077 291 40,42675–2683 3078–3086 292 40,52684–2692 3087–3095 293 40,62693–2701 3096–3104 294 40,72702–2710 3105–3113 295 40,92711–2719 3114–3122 296 41,02720–2728 3123–3131 297 41,12729–2737 3132–3140 298 41,2

Total weight (kilograms) Co2–emissions(g/km)

Tax rateother than diesel Diesel

201

2738–2746 3141–3149 299 41,42747–2755 3150–3158 300 41,52756–2764 3159–3167 301 41,62765–2773 3168–3176 302 41,72774–2782 3177–3185 303 41,82783–2791 3186–3194 304 42,02792–2800 3195–3203 305 42,12801–2809 3204–3212 306 42,22810–2818 3213–3221 307 42,32819–2827 3222–3230 308 42,52828–2836 3231–3239 309 42,62837–2845 3240–3248 310 42,72846–2854 3249–3257 311 42,82855–2863 3258–3266 312 42,92864–2873 3267–3275 313 43,12874–2882 3276–3284 314 43,22883–2891 3285–3293 315 43,32892–2900 3294–3302 316 43,42901–2909 3303–3312 317 43,62910–2918 3313–3321 318 43,72919–2927 3322–3330 319 43,82928–2936 3331–3339 320 43,92937–2945 3340–3348 321 44,02946–2954 3349–3357 322 44,22955–2963 3358–3366 323 44,32964–2972 3367–3375 324 44,42973–2981 3376–3384 325 44,52982–2990 3385–3393 326 44,72991–2999 3394–3402 327 44,83000–3008 3403–3411 328 44,93009–3017 3412–3420 329 45,03018–3026 3421–3429 330 45,13027–3035 3430–3438 331 45,33036–3044 3439–3447 332 45,43045–3053 3448–3456 333 45,53054–3062 3457–3465 334 45,63063–3071 3466–3474 335 45,83072–3080 3475–3483 336 45,93081–3089 3484–3492 337 46,03090–3098 3493–3501 338 46,13099–3107 3502–3510 339 46,23108–3116 3511–3519 340 46,43117–3125 3520–3528 341 46,53126–3134 3529–3537 342 46,63135–3143 3538–3546 343 46,73144–3152 3547–3555 344 46,83153–3161 3556–3564 345 47,03162–3170 3565–3573 346 47,13171–3179 3574–3582 347 47,23180–3188 3583–3591 348 47,33189–3197 3592–3600 349 47,53198–3206 3601–3609 350 47,63207–3215 3610–3618 351 47,73216–3224 3619–3627 352 47,83225–3233 3628–3636 353 47,93234–3242 3637–3645 354 48,13243–3251 3646–3654 355 48,23252–3260 3655–3663 356 48,33261–3269 3664–3672 357 48,43270–3278 3673–3681 358 48,63279–3287 3682–3690 359 48,73288 or more 3691 or more 360 or more 48,8

Total weight (kilograms) Co2–emissions(g/km)

Tax rateother than diesel Diesel

202TABLE 14. Car tax rates II

Total weight(kilograms)

Deduction from the tax rate, percentage points

2501–2550 6,8

2551–2600 8,5

2601–2650 9,8

2651–2700 10,8

2701–2750 11,7

2751–2800 12,4

2801–2850 13,1

2851–2900 13,7

2901–2950 14,2

2951–3000 14,8

3001–3050 15,3

3051–3100 15,7

3101–3150 16,1

3151–3200 16,6

3201–3250 16,9

3251–3300 17,3

3301–3350 17,7

3351–3400 18,0

3401–3450 18,4

3451–3500 18,7

203

no more than 66 5,3 19,34567 5,5 20,07568 5,6 20,44069 5,8 21,17070 6,0 21,90071 6,1 22,26572 6,3 22,99573 6,4 23,36074 6,6 24,09075 6,8 24,82076 6,9 25,18577 7,1 25,91578 7,3 26,64579 7,4 27,01080 7,6 27,74081 7,8 28,47082 8,0 29,20083 8,1 29,56584 8,3 30,29585 8,5 31,02586 8,7 31,75587 8,9 32,48588 9,1 33,21589 9,3 33,94590 9,5 34,67591 9,6 35,04092 9,8 35,77093 10,0 36,50094 10,2 37,23095 10,5 38,32596 10,7 39,05597 10,9 39,78598 11,1 40,51599 11,3 41,245100 11,5 41,975101 11,7 42,705102 11,9 43,435103 12,2 44,530104 12,4 45,260105 12,6 45,990106 12,8 46,720107 13,1 47,815108 13,3 48,545109 13,5 49,275110 13,8 50,370111 14,0 51,100112 14,2 51,830113 14,5 52,925

Level of carbon dioxide emission of the vehicle g/km

cents/day

Amount of tax euros/ 365 days

Appendix 13

TABLE 15. Vehicle tax rates I

114 14,7 53,655115 15,0 54,750116 15,2 55,480117 15,4 56,210118 15,7 57,305119 15,9 58,035120 16,2 59,130121 16,5 60,225122 16,7 60,955123 17,0 62,050124 17,2 62,780125 17,5 63,875126 17,8 64,970127 18,0 65,700128 18,3 66,795129 18,6 67,890130 18,9 68,985131 19,1 69,715132 19,4 70,810133 19,7 71,905134 20,0 73,000135 20,3 74,095136 20,5 74,825137 20,8 75,920138 21,1 77,015139 21,4 78,110140 21,7 79,205141 22,0 80,300142 22,3 81,395143 22,6 82,490144 22,9 83,585145 23,2 84,680146 23,5 85,775147 23,8 86,870148 24,1 87,965149 24,4 89,060150 24,8 90,520151 25,1 91,615152 25,4 92,710153 25,7 93,805154 26,0 94,900155 26,4 96,360156 26,7 97,455157 27,0 98,550158 27,3 99,645159 27,7 101,105160 28,0 102,200161 28,3 103,295162 28,7 104,755163 29,0 105,850164 29,4 107,310165 29,7 108,405166 30,0 109,500167 30,4 110,960

204

168 30,7 112,055169 31,1 113,515170 31,5 114,975171 31,8 116,070172 32,2 117,530173 32,5 118,625174 32,9 120,085175 33,3 121,545176 33,6 122,640177 34,0 124,100178 34,4 125,560179 34,7 126,655180 35,1 128,115181 35,5 129,575182 35,9 131,035183 36,2 132,130184 36,6 133,590185 37,0 135,050186 37,4 136,510187 37,8 137,970188 38,2 139,430189 38,6 140,890190 39,0 142,350191 39,3 143,445192 39,7 144,905193 40,1 146,365194 40,5 147,825195 41,0 149,650196 41,4 151,110197 41,8 152,570198 42,2 154,030199 42,6 155,490200 43,0 156,950201 43,4 158,410202 43,8 159,870203 44,3 161,695204 44,7 163,155205 45,1 164,615206 45,5 166,075207 46,0 167,900208 46,4 169,360209 46,8 170,820210 47,3 172,645211 47,7 174,105212 48,1 175,565213 48,6 177,390214 49,0 178,850215 49,5 180,675216 49,9 182,135217 50,3 183,595218 50,8 185,420219 51,2 186,880220 51,7 188,705221 52,2 190,530222 52,6 191,990223 53,1 193,815224 53,5 195,275

Level of carbon dioxide emission of the vehicle g/km

cents/day

Amount of tax euros/ 365 days

225 54,0 197,100226 54,5 198,925227 54,9 200,385228 55,4 202,210229 55,9 204,035230 56,4 205,860231 56,8 207,320232 57,3 209,145233 57,8 210,970234 58,3 212,795235 58,8 214,620236 59,2 216,080237 59,7 217,905238 60,2 219,730239 60,7 221,555240 61,2 223,380241 61,7 225,205242 62,2 227,030243 62,7 228,855244 63,2 230,680245 63,7 232,505246 64,2 234,330247 64,7 236,155248 65,2 237,980249 65,7 239,805250 66,3 241,995251 66,8 243,820252 67,3 245,645253 67,8 247,470254 68,3 249,295255 68,9 251,485256 69,4 253,310257 69,9 255,135258 70,4 256,960259 71,0 259,150260 71,5 260,975261 72,0 262,800262 72,6 264,990263 73,1 266,815264 73,7 269,005265 74,2 270,830266 74,7 272,655267 75,3 274,845268 75,8 276,670269 76,4 278,860270 77,0 281,050271 77,5 282,875272 78,1 285,065273 78,6 286,890274 79,2 289,080275 79,8 291,270276 80,3 293,095277 80,9 295,285278 81,5 297,475279 82,0 299,300280 82,6 301,490281 83,2 303,680282 83,8 305,870283 84,3 307,695284 84,9 309,885285 85,5 312,075286 86,1 314,265287 86,7 316,455

205Level of carbon dioxide emission of the vehicle g/km

cents/day

Amount of tax euros/ 365 days

288 87,3 318,645289 87,9 320,835290 88,5 323,025291 89,0 324,850292 89,6 327,040293 90,2 329,230294 90,8 331,420295 91,5 333,975296 92,1 336,165297 92,7 338,355298 93,3 340,545299 93,9 342,735300 94,5 344,925301 95,1 347,115302 95,7 349,305303 96,4 351,860304 97,0 354,050305 97,6 356,240306 98,2 358,430307 98,9 360,985308 99,5 363,175309 100,1 365,365310 100,8 367,920311 101,4 370,110312 102,0 372,300313 102,7 374,855314 103,3 377,045315 104,0 379,600316 104,6 381,790317 105,2 383,980318 105,9 386,535319 106,5 388,725320 107,2 391,280321 107,9 393,835322 108,5 396,025323 109,2 398,580324 109,8 400,770325 110,5 403,325326 111,2 405,880327 111,8 408,070328 112,5 410,625329 113,2 413,180330 113,9 415,735331 114,5 417,925332 115,2 420,480333 115,9 423,035334 116,6 425,590335 117,3 428,145336 117,9 430,335337 118,6 432,890338 119,3 435,445339 120,0 438,000340 120,7 440,555341 121,4 443,110342 122,1 445,665343 122,8 448,220344 123,5 450,775

345 124,2 453,330346 124,9 455,885347 125,6 458,440348 126,3 460,995349 127,0 463,550350 127,8 466,470351 128,5 469,025352 129,2 471,580353 129,9 474,135354 130,6 476,690355 131,4 479,610356 132,1 482,165357 132,8 484,720358 133,5 487,275359 134,3 490,195360 135,0 492,750361 135,7 495,436362 136,5 498,130363 137,2 500,831364 138,0 503,539365 138,7 506,255366 139,4 508,978367 140,2 511,708368 140,9 514,446369 141,7 517,190370 142,5 519,943371 143,2 522,702372 144,0 525,469373 144,7 528,243374 145,5 531,024375 146,3 533,813376 147,0 536,608377 147,8 539,412378 148,6 542,222379 149,3 545,040380 150,1 547,865381 150,9 550,697382 151,7 553,537383 152,4 556,384384 153,2 559,238385 154,0 562,100386 154,8 564,969387 155,6 567,845388 156,4 570,729389 157,2 573,619390 158,0 576,518391 158,7 579,423392 159,5 582,336393 160,3 585,256394 161,1 588,183395 162,0 591,118396 162,8 594,059397 163,6 597,009398 164,4 599,965399 165,2 602,929400 or more 166,0 605,900

206TABLE 16. Vehicle tax rates II

Total weight of thevehicle kg

Amount of tax

cents/day euros/365 days

no more than 1 300 20,8 75,92

1 301–1 400 23,8 86,87

1 401–1 500 27,0 98,55

1 501–1 600 30,4 110,96

1 601–1 700 34,0 124,10

1 701–1 800 37,8 137,97

1 801–1 900 41,8 152,57

1 901–2 000 46,0 167,90

2 001–2 100 50,4 183,96

2 101–2 200 55,0 200,75

2 201–2 300 59,8 218,27

2 301–2 400 64,8 236,52

2 401–2 500 70,0 255,50

2 501–2 600 75,4 275,21

2 601–2 700 81,0 295,65

2 701–2 800 86,8 316,82

2 801–2 900 92,8 338,72

2 901–3 000 99,0 361,35

3 001–3 100 105,4 384,71

3 101–3 200 112,0 408,80

3 201–3 300 118,8 459,17

3 401 or more 133,0 485,45

207Appendix 14

The Government’s proposals to Parliament in the autumn 2008

The Government has presented following (still pending) proposals to the Par-liament:

1) that an income tax exemption be granted to apartment rental companies.

A. Qualifying companies

According to the Act on Tax Exemption for Apartment Rental Companies income tax exemption is granted to resident companies engaged in apartment rental.

B. Conditions for the exemption

The exemption is granted if the following conditions are fulfilled:

1. The only business of the company is

• rentalofitsownspaceorspaceheldonthebasisofshareownership;

• ordinarymanagementandmaintenanceconnectedwiththerental;

• constructionactivityonitsownbehalf;

• managementofpropertyinconnectionofthesethreeactivities.

2. At the end of the previous tax year at least 80 per cent of assets in the com-pany’s balance sheet consist of real property, shares in residential housing companies or shares entitling to the enjoyment of an apartment in other mutual real property companies whose only business is owning or holding of real property and buildings on it. These rules also apply to comparable companies and corporations resident in other EEA Member States.

3. The company has no other assets than

• thosenecessaryforitsbusinessmentionedinB.1above;and

• thosementionedinArticle15paragraph1subparagraphs3–6oftheActon Real Property Funds (1173/1997): securities publicly traded in Fin-land or (subject to some conditions) in other States, claims that are not deemed to be securities, cash or easily liquidateable assets that are com-parable to cash.

2084. The amount of liabilities in the consolidated final accounts (if the com-

pany has to produce such accounts) or in the company’s final accounts is not more than 80 per cent of the total amount of the balance sheet.

5. No shareholder owns more than 10 per cent (30 per cent in tax years 2009—2012) of the company’s share capital.

6. The Act on Real Property Funds is applicable to the company.

Real property is deemed to be used for living purposes if more than 50 per cent of the total area of apartments in buildings on that real property are apart-ments for living purposes. The same goes for empty building lots (for living purposes) in town plan areas.

Tax exemption remains in force only if

• thecompanydistributesasdividendforataxyeartheamountreferredtoin G. below;

• thecompany’ssharesaretradedinataxyearonaregulatedmarketinthearea of EEA or in multilateral trading on the EEA on the condition that the shares have been admitted to trading on application by the company;

• thecompanydistributesitsprofitonlyasdividends;and

• the company, its subsidiaries or affiliate companies (referred to in B.2above) are not parties to a transaction or an arrangement realised obvi-ously in order to evade tax.

C. Start and revocation of the exemption

The tax exemption is applied from the beginning of the tax year following the tax year when the company submits its application except for the following case where it is applied from the start of the tax year when the application is submitted if the company so requires and:

• theconditionsforgrantingtheexemptionwerefulfilledattheendoftheprevious tax year; or

• thecompanyhasbeenincorporatedforexercisingtheactivitymentionedin the Act on Tax Exemption for Apartment Rental Companies or the com-pany is a result of merger or division in the year when the application is submitted and the conditions for granting the exemption are fulfilled at the end of that same year.

209The exemption expires at the end of the tax year in which a decision on revok-

ing the exemption is made but if making such decision is delayed because the company has not fulfilled its declaration duties, the exemption expires at the end of the tax year in which the reason for the revoking the exemption came about. The exemption may be revoked retroactively (from the beginning of the first exemption year) if the conditions for the exemption are not fulfilled in the first exemption year or if the exemption was granted on the basis of erroneous information supplied by the company.

D. Becoming subject to the exemption

When an apartment rental company becomes subject to the exemption, the likely alienation price of its assets is deemed to be taxable income of the tax year preceding the first exemption year. The same price is also the acquisi-tion cost of the assets at the beginning of the exemption. Also certain reserva-tions are deemed to be taxable income in the same way. On application by the company, a postponement of three years for the paying of the tax debt may be granted.

E. Calculated depreciation in the exemption period

In the exemption period calculated depreciations are made annually on the basis of the acquisition cost of the company’s fixed assets. The depreciation corresponds to the maximum amount that would deductible for income tax.

F. Alienation of the assets in the exemption period

1. If the company alienates assets mentioned in B.2, which it has owned less than five years or less than ten years has elapsed from taking into use real property or buildings of a residential housing company or a mutual real property company, the company has to pay (by an order of the tax admin-istration) an amount that is 26 per cent of the difference between alienation price and acquisition cost. These time limits are not applied if significant improvement (renovation) has been made on the alienated real property or in the company’s buildings and the cost incurred is more than 30 per cent of net book value of the buildings on the real property and the alienation takes place before five years have elapsed from the finishing of the improve-ments.

2. Similar rule applies to such property mentioned in B.2, which is other than the property mentioned in F.1 above if more than 10 per cent is alienated.

In these cases calculated depreciation is used (see E. above).

210G. Obligation to distribute profit

1. The company must distribute at least 90 per cent of its annual profit as dividend. Profit does not include changes in values (appreciation etc. that has not realised, and subject to the exceptions caused by Limited Liability Companies Act).

2. The company may leave at most 40 per cent of its profit undistributed to be used for the acquisition of assets mentioned in B.2 (real property, shares in residential housing companies, shares entitling to the enjoyment of an apartment in other mutual real property companies whose only business is owning or holding of real property and buildings on it) in the seven follow-ing accounting periods.

3. If the undistributed amount is not used in such a way for the acquisition of real property or shares in residential housing companies or mutual real property companies whose buildings have been taken into use (for living purposes) during the three years before the acquisition, the company has to pay an amount equal to 10 per cent of the undistributed amount.

4. The part of the undistributed amount, which has not been used in the way described above during the seventh accounting period at the latest, must be distributed as dividend for that period in addition to the amount that is to be distributed on the basis of 1 and 2 above (subject to the provisions of Limited Liability Companies Act).

H. Taxation of distributions

Dividend that the company distributes for the exemption period to its share-holders is tax exempt to its recipients.

If a shareholder’s share in the company’s capital is at least 10 per cent (30 per cent in tax years 2009—2012) on the record date, the company has to pay (by an order of the tax administration) an amount calculated by multiplying the dividend distributed to the shareholder by corporation tax rate.

I. Minimum share of rental income

If the rental income derived by the company from apartments mentioned to in B. above in a tax year is less than 80 per cent of the company’s total income (excluding alienation prices of assets referred to in B.2, in other words real property, shares in residential housing companies, shares entitling to the enjoyment of an apartment in other mutual real property companies whose only business is owning or holding of real property and buildings on it), the company has to pay an amount that is 20 per cent of the amount of rental income that falls short of the 80 per cent of the company’s total income.

211J. Merger, division and winding up of a company

Similar rules as for other companies are applied in the case of merger, division and winding up of a company, see #2.5.12.

K. Taxation after the exemption period

Undistributed profit at the end of the last exemption year and amounts trans-ferred from profit to other items of own capital in the exemption period are taxable income for the year following the last exemption year. Deduction is granted for dividend to be distributed for that year.

After the beginning of the year following the last exemption year the com-pany is taxed according to general income tax laws. Costs, interest and losses, which relate to the exemption period and which could have been deducted in the company’s taxation in the exemption period, are not deducted in income taxa-tion if the company had at that time been taxed according to income tax laws.

The confirmed losses (carry forward) and unused income tax credits (in the now abolished avoir fiscal system) that the company had at the beginning of the exemption, are deducted in the following tax years according to the gen-eral income tax laws. The exemption period does not interrupt the time limits for such deductions.

The net book value (for depreciation purposes) at the beginning of the year following the last exemption year is the total amount of amounts mentioned in D. above (the likely alienation price of its assets). As for fixed assets, the net book value (for depreciation purposes) is the amount mentioned in E. above (the acquisition cost minus annual calculated depreciations).

L. Miscellaneous

Exemption must be applied for at the end of the tax year (at the latest) for which it is applied. The exemption is granted by tax administration.

2) that the income tax exemption of Ekokem Oy (a company for treating haz-ardous waste) be abolished (as of the tax year 2008).

3) that the credit method of Act on Elimination of International Double Tax-ation (and the whole Act) be also applied to remunerations, removal com-pensations, pensions, unemployment and family pensions received on the basis of the membership of the EU Parliament. Taxes paid to a foreign State would include taxes paid to the European Communities.

MINISTRY OF FINANCESnellmaninkatu 1 A

PO BOX 28, 00023 GovernmentTel. +358 9 160 01

Fax (09) 160 33123www.financeministry.fi

7/2009Ministry of Finance publications

April 2009

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