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Finland | Transfer Pricing

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The Finnish Tax Administration informed last week that it will follow the guidelines established by the Finnish Supreme Administrative Court ('SAC') in two recent rulings dealing with transfer pricing arrangements between entities of the same corporate group.

The first ruling (KHO:2017:145) upheld the principle that the tax assessment shall, as a rule, be based on the legal form of the transaction. Accordingly, the application of the Finnish structural adjustment rule calls for strict formality and transactions may be recharacterized in accordance with its substance rather than its form only in exceptional circumstances and in cases of clear tax avoidance. The ruling emphasizes the parties’ freedom of choosing the form of the transaction and determining the applicable transfer pricing methods.

The latter ruling (KHO:2017:146) deals with appropriate charges for low value-adding intra-group services. The SAC held that to the extent intra-group services comprise of general administrative or back office and support services as provided for in the Chapter 7 of the OECD Transfer Pricing Guidelines, a profit margin of 3% will generally be deemed sufficient. Taxpayers are thus encouraged to review the applied profit margins and make necessary amendments already during the current tax year.

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