Deloitte neuvonantajana korkeimman hallinto-oikeuden ratkaisussa


Tax Alert

Scope of interest deduction limitation rules to significantly broaden under the government proposal

On 27 September 2018, the Finnish government published a proposal to amend the domestic rules governing the deductibility of interest expense. The new interest deduction limitation rules are, in many respects, stricter and more complicated than the current ones. In addition, there is very short time to react since the new rules will be applicable for financial years ending on or after 1 January 2019. For companies with calendar year as a reporting period, the new rules would thus become applicable in three months.

Below is a summary of the contents of the government proposal.

Key features of the new legislation

Deductible interest expense

The scope of interest deduction limitation rules is extended to apply both related and third party loans. Furthermore, the rules apply to all Finnish resident corporate taxpayers taxed in the source of both business and non-business income, including e.g. real estate companies, which currently fall outside the scope.

Net interest expenses would continue to be deductible up to an amount equal to 25% of a company’s adjusted taxable income (EBITD). The received and/or paid group contribution is also included in the adjusted taxable income. The general threshold of EUR 500,000 would continue to apply. However, interest expenses paid to third parties, such as interest on bank loans, would be fully deductible up to EUR 3,000,000.

The definition of interest expense is extended to cover interest on all forms of debt and expenses incurred in connection with the raising of finance, e.g. guarantee and credit fees. However, the definition of interest is not as wide as the Directive would enable, e.g. interest elements in financial leases are exempt.


The current group ratio rule remains in the new legislation; limitations are not applicable if the equity ratio of the company is equal to or higher than the equivalent ratio of the group. There are few technical changes made, e.g., all assets and liabilities must be valued using the same accounting principles. Otherwise, the group’s consolidated balance sheet must be converted to be equivalent to the company’s balance sheet (not vice versa) so that the comparison can be made. In addition, the recent case law (KHO:2018:2 and KHO T 65 10.1.2018) is taken into account when defining the comparable consolidated balance sheet, this has a particular impact especially on private equity fund structures.

The grandfather clause enabled by the Directive is introduced for loans from third parties, which were concluded before 17 June 2016 or interest expenses capitalized before 1 January 2019. The exemption does not include changes made to the loan amount or extension of the loan period.

A new definition of a standalone entity is introduced for a taxpayer that is not part of a consolidated group and has no permanent establishment or related party (25% direct or indirect ownership, voting rights or capital ownership). Standalone entities are exempt.

Financial undertakings as well as long-term public infrastructure projects in relation to social housing are exempt as enabled by the Directive. The definition of a financial undertaking differs from the current exemption, for some part the scope expands, but some currently exempt companies, e.g., holding companies and certain service companies, will be subject to the new rules.

Carry forward

Non-deductible interest expenses are carried forward to future tax years without expiry similarly as in current legislation. However, the application of the carry forward rule will be more complicated since the related and third party interest expenses and interest expenses in different sources of income has to be calculated separately. There should be adequate processes in place in order to monitor different interest expenses.


Even though the final government proposal is in many ways amended compared to the previous draft, the new interest deduction limitation rules will broaden the scope of the rules significantly. One substantial change is that the scope includes interest expenses paid to both related and third parties. Additionally, many non-business taxpayers, which currently fall outside the scope, will be covered by the new legislation, e.g., real estate companies.

Because the definition of interest will be amended, companies should carefully consider the impact of the new legislation on their overall net interest expenses and make sure that there are sufficient processes to follow the changes in their interest expense and income. Furthermore, the new rules are very complex. For instance, they introduce separate thresholds for related and third party loans, which will add another layer to the calculations of deductible interest expenses.

We would recommend that an assessment of a need for restructurings should be made at once. We are happy to assist your company to evaluate the effects of the changes in the deductibility of interest expenses on your current financing structures.

More global tax news & views

Visit tax@hand
Oliko tieto hyödyllistä?