Our point of view

Nordic Market Newsletter 2/2013

19 March 2013


Amendments to the Debt Collection Act

Anybody involved in the collection of consumer credit in Finland should be aware of two significant new reforms which come into effect on 16 March 2013. First, the cap on debt collection fees that can be charged to the debtor per debt has been lowered significantly from the existing rates. The new system has three thresholds based on monetary value of the original debt, which determine the cap on debt collection fees: for debts up to EUR 100, the maximum fees are EUR 60; for debts up to EUR 1,000, the maximum fees are EUR 120; and for debts above EUR 1,000, the maximum fees are EUR 210.

The second recent change entitles the debtor to request the creditor to suspend the fee incurring collection before the maximum fee limit has been reached and bring an action for debt against him/her at competent Court instead.

The last important change, which will come into effect on 16 December 2013, concerns the allocation of the debtor’s payments: under the new system these payments will be allocated firstly as repayments of the original debt and can be allocated on the possible debt collection fees only after the actual debt has been paid off.

As part of the legislative reform, the EU Directive on Combating Late Payment in Commercial Transactions (2011/7/EU) is also being implemented, which sets a new standard fee of EUR 40 for payment delay in transactions where companies provide services or goods to other companies or public authorities. Interest on delayed payments for companies and public authorities will also increase one per cent compared to the existing interest rate.
The reform is intended compel timely payment of debts by companies and public authorities, which will help protect smaller actors who often face difficulties collecting debts from powerful debtors, such as important customers or suppliers. The new lower caps on debt collection fees could clearly affect the business model applied by companies involved in collection of consumer credit.

Jouko Markkanen, Associate, Helsinki

(See also Payments in commercial transactions - amendments to the Danish Interest Act in the Denmark section of this Newsletter.)

Amendments to Finnish Transfer Taxation – Potential for complications in M&A and Real Estate transactions

Coming amendments to the Finnish transfer tax legislation may have significant implications on the tax treatment of transfers of shares in real estate holding companies as well as transfers of shares in Finnish companies generally.

The transfer tax rate applicable on transfers of shares in companies, whose activities are mainly comprised of the direct or indirect ownership of real estate in Finland, will increase from 1.6 per cent to 2.0 per cent. The transfer tax on transfer of shares is, as a starting point, payable by the buyer on the purchase price of the shares. In addition to the tax rate change, the transfer tax liability is being extended. Previously, in cases where neither the seller nor the buyer is a tax resident in Finland, transfers of Finnish real estate holding company shares were subject to Finnish transfer taxation only where the holding company was the immediate owner of the Finnish real estate. Under the new rules, the tax liability in transactions among non-residents is extended to cover even cases where a Finnish holding company has indirect ownership of Finnish real estate (e.g. through a subsidiary). Furthermore, where either the seller or the buyer or both are Finnish tax residents, Finnish transfer taxation will be extended even to foreign holding companies and other entities, if their activities primarily consist of direct or indirect ownership of Finnish real estate.

Thirdly, the transfer tax base is significantly widened by including debts of the target company in the tax base in addition to the actual sales price of the company shares in certain situations. With respect to real estate holding companies this may be the case e.g. if company debt has been allocated to the shares to be transferred (in the articles of association of the company, in a shareholders’ agreement or similar).

Perhaps more importantly, the debts of the target company may be included in the tax base even in case of a transfer of shares in any Finnish company (e.g. a regular business company), where the buyer has agreed to repay the debt as a part of the sales transaction and provided that the payment is made to the seller or otherwise benefits the seller. This may typically be the case where the seller or a group company of the seller (e.g. a group financing company) has given the target company a loan that will be repaid by the buyer as a part of the transaction. Even a refinancing of the company debts agreed by the buyer in the context of the sale could lead to the inclusion of the debt capital into the transfer tax base.

The new rules will in many situations lead to higher transfer tax costs, but certain planning opportunities remain. The drafting of the rules is fairly broad, and they leave room for interpretation. As also the tax authorities’ new guidelines provide little clarity with respect to many relevant questions, the amendments are likely to increase uncertainty concerning the transfer tax treatment of M&A and real estate transactions in Finland. Applying for a binding advance ruling from the tax authorities may be advisable in some situations, and certain open questions created by the new rules are likely to remain to be solved in future tax practice and case law.

Lauri Lehmusoja, Senior Tax Lawyer, Helsinki


Proposal for new regulations regarding alternative investment fund managers

In order to implement the AIFM-directive (the Directive on Alternative Investment Fund Managers) into Swedish law (by 1 July 2013), the Swedish Financial Supervisory Authority has proposed new regulations for alternative investment fund managers. The regulations cover special funds, venture capital funds and real estate property funds but not securities funds.

The new regulations govern compensation for alternative investment fund managers, the content in fact leaflets and information folders and complaints and ethical guidelines. Furthermore, the content of different application forms is regulated.

Edward Jansson, Associate, Stockholm and Björn Kristiansson, Partner, Stockholm

EU guidelines are equivalent to general guidelines in Sweden

The Swedish Financial Supervisory Authority (FSA) resolved in a memorandum that the guidelines from the European Supervisory Authorities for bank, insurance and occupational Pensions Authority (Eiopa) and the European securities markets are equivalent to general guidelines in Sweden. Accordingly, the FSA will not republish such guidelines as Swedish guidelines. It should be noted though that the FSA may transform some guidelines into binding regulations when found necessary.

This memorandum is important for compliance officers in companies subject to FSA regulation in Sweden, because it confirms the direct applicability of EU guidelines.

Edward Jansson, Associate, Stockholm and Björn Kristiansson, Partner, Stockholm

Tax consultant liable for damages due to negligent tax advice

The Court of Appeal for Western Sweden recently found a tax consultant liable for damages due to negligent tax advice. The dispute concerned a tax consultant who had advised a Swedish client company to deregister three limited partnerships, based on the assumption that deregistration would not cause any adverse tax effects. However, it later became evident that this advice was based on misinterpretation of certain tax provisions. The client, which consequently was found liable for taxes, sued the tax consultant and claimed damages for the loss inflicted on the client as a result of the advice. The tax consultant contested the claim, solely on the ground that the client had not incurred any loss in consequence of the advice. The tax consultant’s position was based on the argument that the Company allegedly would have incurred the tax liability regardless whether it deregistered the partnerships or not. The Court of Appeal disagreed and found that the Company would not have been liable for tax if it had not acted in accordance with the advice. The tax consultant was therefore found liable for damages.

Viktor Kamlin, Trainee, Stockholm and Bruce McGinn, Senior Associate, Stockholm

Swedish Securities Council (SSC)

Arctic Paper

The SSC have assessed a number of issues regarding the public offer made by Arctic Paper for all shares in Rottneros. During February, the SSC made three statements regarding this bid.

  • Arctic Paper had stated that the acceptance period for the bid would not be prolonged beyond the initial period. After the offer became unconditional, Arctic paper announced that it would continue to receive acceptances. The SSC confirmed that this was consistent with good practice on the stock market because this is a concession to the shareholders who had not yet accepted the bid.
  • Arctic Paper had requested the board of Rottneros to convene an extra ordinary general meeting for elections to the board etc. The board of Rottneros preferred instead to move forward the company’s annual general meeting in order to avoid two general meetings in short succession. The SSC agreed that this approach was preferable.
  • The SSC also considered whether the type and amount of consideration in an acquisition of shares in Rotternos made by Arctic Paper after the bid was published was in compliance with the rules and in particular that it was no more favourable for the seller than the terms given made to other shareholders under the offer. The consideration for the subsequent acquisition comprised both shares and cash, while the original bid was principally an exchange offer. The SSC found that the consideration paid in the subsequent acquisition was not higher in value than the value of the bid by the announcement of the completion of the bid and that it was not relevant that the consideration was given in a different form.

Other exemptions

In an application which preceded the recent bid for Swedish OMX-listed Höganäs AB, H-Intressenter (the bidder) sought an exemption from extending the offer to shareholders in the United States, even though they held approximately nine per cent of the shares and approximately seven per cent of the votes. The exemption was granted on the basis that the majority of the shares and votes in the United States were held by institutional investors.
Exemption from mandatory bid obligation

H. Wayne Hayes Jr was granted an exemption from the mandatory bid obligation in relation to a subscription for shares in a non-cash issue in PatientTrac International Medical Technology AB, which is listed on the Nordic MTF platform. The concession was granted after the shareholders’ resolution had approved non-cash share issue on the basis, in large part, that this had been supported unanimously by shareholders present at the meeting.

Due to changed circumstances concerning an exemption previously granted to Mark Hauschildt, Mr Hauschildt applied for a new exemption from the mandatory bid obligation in AllTele Allmänna Svenska Telefonaktiebolaget (AllTele), a company on the Small Cap list of NASDAQ OMX Stockholm. He was granted the exemption on the basis that the AllTele general meeting approves the revised terms of the subscription for new shares and warrants in the planned non-cash issue in AllTele and the conversion of existing convertibles to shares of class A and B.

The SSC granted Konsumentföreningen Stockholm exemption from the mandatory bid obligation which would otherwise arise if it were to subscribe for its entitlement to shares in the planned new issue in RNB Retail and Brands AB, as well as possible shares to be subscribed in accordance with the guaranteed new issue (sw. emissionsgaranti), the latter on customary terms.

Alluvia Mining Ltd was granted an exemption from the mandatory bid obligation which would otherwise arise if it were to subscribe to shares in the planned non-cash issue in Mineral Invest International MII AB.

Svensksundh Invest AB was denied exemption from mandatory bid obligation on the acquisition of shares in NordIQ Göteborg AB, since there were no acceptable reasons for an exemption.

Edward Jansson, Associate, Stockholm and Björn Kristiansson, Partner, Stockholm

New Industry Code from the Swedish Securities Dealers’ Association

On 22 February 2013, the Swedish Securities Dealers’ Association published Guidelines regarding provision of information with respect to structured investment products, for the purpose of enhancing clarity, quality in the provision of information, and transparency on the structured investment products market. The industry code is intended to provide guidelines and a common minimum standard as to what is to be regarded as accepted industry practice, primarily with respect to the provision of information in marketing material concerning structured investment products on the primary market. The industry code primarily covers structured investment products which are offered to the general public and where there is a legal requirement to prepare a prospectus. The guidelines apply in addition to the information required by the Swedish FSA regarding the content of prospectuses and marketing material.

Anders Carlsson, Associate, Stockholm and Paula Röttorp, Partner, Stockholm

Disqualification in respect of voting for discharge of liability

The Land and Environment Court of Appeal affirmed on 13 February 2013 the verdict of the lower court in respect of disqualification of voting for discharge of liability for the board of directors of a joint property association. The court stated that members of the board of directors may never participate in a vote regarding discharge of their own liability and the same applies to deputy board members if they have been involved in the work during the year, because it would be a conflict of interest. The verdict is in line with the provisions of the Swedish Companies Act, pursuant to which a member of the board of directors or a shareholder generally may not participate in a matter where the applicable board member or shareholder has a material interest which may conflict with the interests of the company.

Anders Carlsson, Associate, Stockholm and Sara Mindus, Partner, Stockholm

Proposal referred to the Council on Legislation for consideration

On 21 February 2013, the Government referred a proposal to the Council on Legislation including a proposal for a new act on intervention of market abuse of wholesale energy product trading. The proposal further includes amendments in respect of the Financial Instruments Trading (Market Abuse Penalties) Act. The proposal is a complement to the regulation on wholesale energy market integrity and transparency. It is proposed that any breach of the provisions of the wholesale energy regulation relating to insider trading and market manipulation will be subject to criminal liability. Further, any person who has reported a suspected breach to the national supervisory authority would be prohibited from disclosure of this fact. A breach of the disclosure prohibition would also be subject to criminal liability.

Anders Carlsson, Associate, Stockholm and Fredrik Madani, Partner, Stockholm

The Swedish Shareholders’ Association’s demands for annual general meetings

The Swedish Shareholders’ Association will on the annual general meetings for public listed companies pay special attention to three issues:

  • the commitment of the boards, especially the number of engagements,
  • that there are well-functioning policies for anti-corruption, and
  • that any new or expanded remuneration and benefit programs, should not be restricted to management but extended to a wider circle of employees.

Edward Jansson, Associate, Stockholm and Björn Kristiansson, Partner, Stockholm



Payments in commercial transactions - amendments to the Danish Interest Act

On 1 March 2013 amendments to the Danish Interest Act came into force as part of the implementation into Danish law of the European Union’s new directive aimed at combating late payments in commercial transactions. The amendments include among other initiatives maximum payment terms and an increase in the default interest rate.

During the financial crisis, many small and midsize enterprises experienced a prolongation of credit periods set by powerful customers which has strained the liquidity and competitiveness of smaller actors. In an effort to combat late payments, the EU directive sets common minimum payment standards to dissuade debtors from making late payments.

The amendments made to the Danish Interest Act include:

  • the default interest rate: from 1 March 2013 the interest rate for late payments is the aggregate of the interest rate applied by the Danish Central Bank plus 8 per cent. The creditor’s right to claim interest on late payments cannot be deviated from but the agreed interest rate may be lower than the statutory minimum. A public authority dealing with a private supplier in a commercial transaction may no longer negotiate a lower interest rate than 8 per cent.
  • introducing a 30 days’ period of payment: in commercial transactions, the credit period is set to 30 days from the time when the creditor has requested payment, unless a longer credit period has been specifically agreed between the parties and the period is not considered unreasonable. This means that longer credit periods included in general terms and conditions are no longer enforceable. If the debtor is a public authority the 30-day credit period cannot be deviated from.

It is still possible to agree on payment schedules providing for instalments. However, the payment for each instalment is subject to the rules mentioned above.

While the new amendments in theory improve the legal position of the smaller enterprises vis-á-vis their large debtors, it is doubtful whether smaller enterprises will necessarily be able enforce their rights if that means jeopardising the business relationship with a significant customer. The smaller enterprises may in many instances end up at status quo or facing the imposition of ever longer payment terms – at least until a new market practice for “reasonable credit periods” has been set by the courts.

Anne Hansen-Nord, Senior Associate, Copenhagen

(See also Amendments to the Debt Collection Act in the Finland section of this newsletter)


Tightening of the withholding tax regime and rules for taxation of intra-group transfer of shares

The Danish Parliament has adopted a tax bill which tightens the Danish dividend withholding tax regime and the Danish rules for taxation of intra-group transfer of shares. The bill entails that corporate shareholders resident in jurisdictions which have a tax treaty with Denmark might lose their tax exemption on outbound dividends. Furthermore, anti-avoidance rules countering replacement of dividend by debt repayments were also introduced.

Tightening of the Danish rules for exemption of Danish dividend withholding tax

As the general rule, dividends distributed by a Danish company to foreign shareholders are subject to a Danish withholding tax of 27 per cent. However, until 1 January 2013, the Danish corporate tax regime provided for an exemption where:

  • the shareholder was a legal entity holding at least 10% of the shares in the Danish company; and
  • the shareholder qualified for an elimination or reduction of the Danish withholding tax pursuant to the EU Parent-Subsidiary Directive or a tax treaty between Denmark and the state in which the shareholder resided.

The Danish tax authorities have in recent years sought to narrow the scope of the withholding tax exemption by claiming that it only applies to corporate shareholders which qualify as “the beneficial owner” of the dividend received. Several claims for dividend withholding tax have been raised by the Danish tax authorities on the basis of the beneficial owner requirement and a number of disputes concerning the applicability of such requirement are currently pending in the Danish appeal system.

To further restrict “treaty shopping” a new anti-avoidance provision has been introduced which entails that outbound dividends from Denmark, irrespective of the above mentioned conditions are met, are still subject to tax if:

  • the outbound dividends distributed by a Danish holding company stem from inbound dividends from lower tier foreign affiliates;
  • the parent company receiving the outbound dividend from a Danish holding company is not entitled to invoke the EU Parent-Subsidiary Directive; and
  • the Danish holding company is not the beneficial owner of the inbound dividend.

The new provision will only affect corporate shareholders resident in jurisdictions which have a tax treaty with Denmark. Such shareholders will, if the Danish company is not recognized as the beneficial owner of the dividend passed on, no longer be fully exempt from Danish withholding tax but will be subject to Danish withholding tax at the rate provided for in the applicable tax treaty.

It follows from the legislative notes to the new anti-avoidance provision that the beneficial owner requirement applied in relation to the Danish company is to be understood in accordance with the beneficial owner requirement set out in the dividend provision of the OECD model tax treaty. It can also be derived from the legislative notes that a Danish holding company would generally not qualify as the beneficial owner of dividends received.

Tightening of the rules for taxation of intra-group transfer of shares

As mentioned above, dividend received by a non-Danish parent of a Danish company is only exempt from Danish withholding tax if the parent meets certain requirements. As a consequence, parent companies who do not meet the requirements have in certain situations restructured their investments in their Danish subsidiaries so that dividend distributions from the Danish subsidiary are replaced by repayments of debt, thereby avoiding Danish dividend withholding tax (and any other Danish tax).

The use of debt repayments in place of dividends has in the past been achieved through application of the following structural model:

  • the foreign parent of a Danish subsidiary (A) sets up a new Danish subsidiary (B);
  • subsidiary B then purchases the shares in subsidiary A from the foreign parent against a loan note;
  • dividends are then distributed from subsidiary A to subsidiary B (exempt from tax); and
  • subsidiary B then uses the dividends received from subsidiary A to fully or partially repay the loan note owed to the foreign parent.

Until recently no Danish tax was triggered by this model because foreign shareholders were unconditionally exempt from Danish tax on repayments of debt and capital gains on Danish shares. This model therefore provided an efficient tool for avoiding Danish dividend withholding tax.

To counteract the effects of the above tax model, a new rule has been introduced which entails that consideration received, or deemed to be received, by a legal entity in connection with an intra-group transfer of shares will be re-characterized as dividend in certain situations. The re-characterization will be triggered if:

  • a legal entity transfers shares held in a group related entity to another group related entity for consideration consisting of other valuables than shares in the transferred group entity; and
  • the transferring legal entity would not have qualified for exemption from Danish withholding tax on dividends received from the transferred entity prior to the transfer.

It is clear from the wording of the rule and the legislative notes that the re-characterization of consideration as dividend will be triggered in situations where shares in Danish subsidiaries are transferred to a group related entity by a foreign entity which is not eligible for the Danish dividend withholding tax exemption. The wording of the rule is, however, very broad and the rule may therefore in principle be applied in a number of other scenarios.

The rule has received heavy criticism, not least from the Danish private equity and venture capital industry which has applied the now amputated tax model for years to ensure that portfolio investors did not suffer Danish dividend withholding tax on their investments in Danish companies. The Danish Parliament has however not been susceptible to the criticism raised.

Nikolaj Bjørnholm, Partner, Copenhagen and Sona Margaryan, Associate, Copenhagen


New EU-rules regarding Exchange Traded Funds (ETF) etc.

The European Commission is implementing new guidelines on 18 February 2013 regarding exchange traded funds and other matters relating to fund companies. The guidelines stipulate the information that fund companies should provide to investors regarding index funds and exchange traded funds. They also regulate transactions involving OTC derivatives and techniques for more effective management and the criteria to be fulfilled by the financial indices on which funds are based.

Edward Jansson, Associate, Stockholm