Finland tightens its transfer pricing rules
Proposed transfer pricing rules would allow recharacterization of intra-group transactions under exceptional circumstances
28 October 2021
On 23 August 2021, Finland’s government issued a draft proposal for public consultation on proposed transfer pricing rules (VML 31§) addressing the recharacterization of intra-group transactions (read our earlier article on the matter here. The purpose of the new rules is to align the Finnish transfer pricing rules with the OECD Transfer Pricing Guidelines. The government proposal has now been finalized and it was approved by Council on 21 October 2021. The content of the proposed new law remained largely the same as in the draft proposal, although some clarifications to the wording were made. According to the government proposal the new law will come into force on 1 January 2022, thus, the Parliament approval is expected before the year end.
Overall, there are no fundamental differences between the draft version and finalized government proposal and the reasoning in the proposal still follows heavily the principles laid down in the OECD Transfer Pricing Guidelines.
The new rules, addressing accurate delineation and recharacterization of intra-group transactions, would have a significant change in the current legal practice, as the Finnish Supreme Administrative Court (SAC) has ruled in its earlier landmark rulings (SAC 2014:119, SAC 2020:35) that re-characterization of transactions between related parties is not possible under the current wording of the domestic transfer pricing provision. The new rules would thus, have a fundamental an impact on the certain current structures and result in increased audit activity and disputes surrounding, for example, intra-group financing, business restructurings, and principal company operating models that have been identified as areas requiring more detailed guidance in the proposal.
As the proposed rules will come into force already on 1 January 2022, multinational enterprises should start reviewing their current structures and transfer pricing models in light of the proposed rules already now.
Deloitte Finland transfer pricing team is happy to discuss and assist our clients in analyzing the possible impacts of the proposed new rules in more detail.