Concept and Regulation in Finland

Transfer Pricing legislation is set out in the Assessment Procedure Act. Transfer Pricing documentation requirements are set out in Sections 14a, 14b, and 14c of the aforementioned Act.

In January 2018, the Finnish tax authorities issued new Guidance No. A129/200/2017 on Transfer Pricing Documentation, replacing the 2007 Guidance. The documentation refers to the issue raised in Action 13 of the OECD BEPS Plan and adds sections on both a Master File and a Local Report. Taxpayers are required to prepare annual documentation and provide additional data. 

The Principal Taxpayers Office has been responsible for all transfer pricing issues since January 2012. Transfer pricing is one of the key areas of a tax audit and applies to Finnish multinationals and Finnish subsidiaries of foreign multinational companies. 

On August 23, 2021, the Finnish Government issued a draft proposal for public consultation on transfer pricing rules, which addressed the re-characterization of intra-group transactions. The new rules aimed to align the Finnish transfer pricing rules with the OECD Transfer Pricing Guidelines. The government’s proposal was approved by the Council of State on October 21, 2021. 

From January 2022, Finland has amended its transfer pricing rules, allowing the Finnish Tax Administration (FTA) to make transfer pricing adjustments to the maximum extent permitted by the OECD Transfer Pricing Guidelines.

Arm’s Length Principle: Concept

Article 31 of the Assessment Procedure Law explicitly refers to the Arm’s Length Principle. According to this Article, if a taxpayer and a related party agreed on terms or conditions different from those agreed between independent parties in the transaction, remaining lower the taxable income from the taxpayer’s business or other activities or increasing the loss more than otherwise, the amount that would have accrued is added to the income if fulfilled the independent parties conditions.

Definition of Related Party in Finland

According to the Assessment Procedure Act, Article 31.4, the related parties are:

  1. A taxpayer who has a direct or indirect equity stake exceeding 50% of any of the shares or votes of another company.
  2. A taxpayer who has direct or indirect rights to appoint more than half of the members of the board of directors of another company.
  3. A taxpayer who has dispositive rights regarding the other company due to other circumstances.

Transfer Pricing Methodology in Finland 

The OECD Transfer Pricing Guidelines constitute a source of interpretation for applying all the methods recommended by this Organization. One of the following five methods may be used:

  • Comparable Uncontrolled price method.
  • Cost Plus Method.
  • Resale Price Method.
  • Profit Split method.
  • Transactional Net Margin Method.

Transfer Pricing Documentation in Finland

The Transfer Pricing documentation must be filed within 60 days, and the comparability analysis within 90 days upon request from the Tax Administration. It may not be requested before six months from the end of the relevant accounting period. An extension may be granted.

Local Report

A complete local report is required if the annual volume of controlled cross-border transactions of the local entity or branch with a non-resident related party exceeds €0.5 million. If annual related party transactions with a local entity are less than €0.5 million, the requirement for a detailed functional comparative analysis is waived, having to prepare other local report requirements.

Master File

A master file will be required if the total amount of all cross-border transactions of the associated local taxpayer exceeds €0.5 million with any non-resident-related party. 

The country-by-country reporting and the automatic exchange of information will be implemented based on changes to the EU administrative assistance directive.

Country by Country Report

The parent company of the domestic group, which is the ultimate parent company of the group, must prepare the Country-by-Country Report if the consolidated financial statements of the group include, at least, a foreign company or a foreign permanent establishment and the consolidated sales in the previous fiscal year amount to €750 million, at least. 

A domestic taxpayer may also be commissioned by the foreign parent entity to file the report for the group.

Transfer Pricing Penalties in Finland

Penalties related to non-compliance documentation will be extended to cover Country-by-Country Reports and Master File filing obligations. Country-by-Country Reports (CbC) were amended by the Tax Administration in Guidance No. A71/200/2018, which regulates the reporting of penalties. A penalty ranging between €150 and €25,000 can be charged as of 2018 if no reports provided or if erroneous or incomplete.

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 Author:       Wolfgang Hartl
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