News & Views

Hannes Snellman Counsel in a Supreme Administrative Court Yearbook Case Clarifying Taxation Related to Dividend in Natura

26 November 2020

Hannes Snellman acted as counsel for the taxpayer in a Supreme Administrative Court yearbook case confirming the tax treatment of transfer tax paid on behalf of a shareholder in connection with distribution of shares as dividend in natura.

Under Finnish law, transfer tax is payable on the transfer of shares, and typically, a listed company distributing shares as dividend in natura would pay the total transfer tax cost as a lump-sum on behalf of its numerous shareholders.  

The Tax Administration had recently issued new guidelines stating that – in the circumstances of the case at hand – the transfer tax paid on behalf of a shareholder should be considered fully taxable “other capital income” of the shareholder. In comparison, tax treatment as dividend would be more lenient as, in order to relieve economic double taxation of business profits, dividend income may be partially tax exempt on shareholder level (e.g. 15% tax exemption for individuals, 25% tax exemption for certain institutional investors).

In this case, the Central Tax Board had confirmed the adverse stance of the new Tax Administration guidelines and upheld the taxation as fully taxable income of the shareholder, without any relief for economic double taxation. The taxpayer appealed the Central Tax Board ruling to the Supreme Administrative Court claiming that the transfer tax paid on their behalf should not constitute income at all and should thus be considered tax exempt altogether.

The Supreme Administrative Court partially accepted the taxpayer’s claim and, repealing the Central Tax Board ruling, the Court ruled that transfer tax paid on behalf of a shareholder in connection with distribution of shares as dividend in natura shall be treated as comparable to profit distribution and thus taxed as dividend income, i.e. as partially tax-exempt income for the shareholder. In other words, the new guidelines issued by the Tax Administration on the taxation of dividend in natura were thus deemed to be against the correct interpretation of the tax law.

The shareholders who have received dividend in natura may now reclaim a refund for any excess taxes levied on the transfer tax paid on their behalf.

Hannes Snellman’s team included Jenni Parviainen and Heikki Vesikansa.