Central Tax Boards preliminary ruling KVL:007/2016 on cross border mergers

Ltd. A intended to merge into plc. C. The Central Tax Board of Finland (KVL) held that the merger provisions of EVL (Business Tax Act) and TVL (Income Tax Act) were not applicable because the merger consideration was mostly cash.

The background of the case is as follows:

  • B is based in xx?;
  • D is based in Ireland;
  • A is based in the UK and has a permanent establishment in Finland;
  • C is A’s subsidiary company based in Ireland and C has a permanent establishment in Finland;
  • D owns C entirely; and
  • B owns A and D entirely.

The parties agreed that C was to pay B a merger consideration, which consisted of approximately 90 per cent of the transferring net assets and approximately 10 percent of C’s own shares. C’s permanent establishment was supposed to take over A’s business in Finland after the merger.

EVL 52 a § and the EU’s Merger Directive hold that a merger consideration may not contain a cash payment exceeding 10 per cent of the nominal value. Hence, the merger provisions were not applicable and the assets of A were not transferred to C’s permanent establishment.

Because the losses were not transferred to C’s permanent establishment, there was no change of ownership in accordance with TVL 122 §. Furthermore, it was held that there was no discrimination on the basis of EU law because the provisions are applied to domestic companies as well.

Therefore, one should always be aware of the laws of a given jurisdiction when dealing with legal cross border matters.

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