Loss Carryforwards in Finnish Share Deals
May 2017

Loss Carryforwards in Finnish Share Deals

Parties engaging in M&A transactions in Finland may face an unpleasant issue emerging from local tax law. In a share deal, if the company being sold has carried-forward losses from previous financial years, the transfer of the company's shares involves the risk of forfeiting these losses for use in the current or future financial years. 

The loss of all loss carryforwards is the general rule under Finnish law if more than half of the shares are transferred directly or indirectly. Upon application, the tax administration may grant an exemption “for special reasons, when this is necessary for continuing the corporation’s operations”. 

Traditionally, the tax administration has been highly reluctant in granting exception permits. In the vast majority of share deals (outside of stock exchange listed companies), an exemption was not granted. The classical list of exceptions would include only quite specific cases such as generation change in a family business, a sale of the company to its own employees, intra-group share transfers, or the sale of an empty shelf company.

In recent years, Supreme Administrative Court decisions have led to a certain movement towards a more lenient practice. Most prominently, a 2013 ruling found it sufficient that it had been established that the company continues its operations after the transaction, that the deduction of losses is necessary for these operations, and that the losses have not been used as tradable merchandise. 

It is too early to speak of a new established practice, and the stand of the tax administration with regard to the matter is yet somewhat undefined. Official tax guidelines issued by the tax administrations do acknowledge the existence of recent precedents, but diligently refrain from making any conclusions with regard to the administration's own interpretation.

For individual transactions, insecurity can be reduced by applying for an exemption. Such application can be filed before the actual transaction, outlining the same in sufficient detail in order for the tax administration to be able to make their conclusions.