New stricter Finnish interest limitation rules

The Finnish Ministry of Finance has published a draft government proposal concerning new interest limitation rules. Changes to the regime have been much awaited since it is known that the current Finnish rules are not fully compliant with the rules laid down in the EU Anti-Tax Avoidance Directive.

Based on the proposal, the new rules in a nutshell:

• The most notable change is that also interest payments to banks or other third parties would be covered by the restrictions (currently only interest paid to related parties is targeted). Fully standalone entities would nevertheless continue to be exempted from the restrictions.
• Another important extension is that all types of activities would fall under the scope of the limitations (currently only interest paid in business activities is restricted); this means a significant change especially for the real estate investment sector.
• Finland would not utilise the option to exclude financial undertakings (which are currently excluded from the scope of the restrictions).
• The mechanism of the restrictions would partly remain and partly be changed:
  • Net interest payments being lesser than EUR 500,000 would remain deductible.
  • If the threshold is exceeded, only net interest payments up to 25 percent of the adjusted taxable profit (EBITD) are deductible, corresponding to the current rules.
  • However, net interest paid to other than associated enterprises would always be deductible up to EUR 3,000,000.
• Finland would opt-out of the balance sheet test exemption, as opposed to the current status.
• Non-deductible interest expenses may be carried forward indefinitely.

The new limitations are planned to take effect as of the beginning of 2019.