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Finland - Credit Losses Remain Tax-Deductible When Enforcing Security Interest

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As a consequence of the economic downtrend, financiers have more often been forced to take over a debtor company in order to secure their interests under a facility agreement.

The tax treatment of any potential credit losses following such takeovers has raised some concerns, as the Finnish Business Income Tax Act includes a general provision according to which credit losses relating to loans/facilities given to a company where the lender owns more than 10% of shares are not tax-deductible.

The Supreme Administrative Court has, however, very recently rendered a decision (KHO 10.1.2012/6), according to which credit losses that relate to loans/facilities given to a company prior to the financer (a bank) acquiring 10% (or more) of the equity/shares in the debtor company remain tax-deductible. The Court reasoned that such loans/facilities do not differ from financing given by the bank to companies where the bank has no ownership and a forced takeover scenario should generally not lead to the bank ending up in a worse off position from a tax point of view. Accordingly, it is expected that this decision will facilitate future enforcement of security interests.

(For further information, please contact Mr. Niklas Thibblin at This e-mail address is being protected from spambots. You need JavaScript enabled to view it Mr. Jouni Kautto at This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

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