Finland’s Amendment Law and the Impact on its Global Minimum Tax Provisions

General

On December 28, 2023, the Finnish President approved the ‘Law on the Minimum Taxation for Corporations’ (the ‘Minimum Tax Act’) to implement the EU Minimum Tax Directive (the ‘EU Directive’)

As provided in the EU Directive, the Law includes an income inclusion rule (IIR) and an under-taxed profits rule (UTPR).

The Minimum Tax Act is effective from January 1, 2024, with the IIR applying to financial years beginning on after December 31, 2023. The UTPR will generally apply to financial years beginning on after December 31, 2024.

A domestic minimum tax (intended to be a Qualified Domestic Minimum Top-Up Tax (‘QDMTT’)) is also to apply for financial years beginning on or after December 31, 2023.

On August 12, 2024, the Finnish government issued draft legislation to amend the Minimum Tax Act to reflect numerous aspects of the OECD Administrative Guidance. This was published in the Official Gazette on December 19, 2024 and applies to financial years beginning on or after January 1, 2024.

In the January 2025 Central Record of Legislation with Transitional Qualified Status issued by the OECD, the Finnish IIR and DMTT are both treated as qualified for GloBE purposes.

GloBE Application

As expected, the Law closely follows the EU Minimum Tax Directive. There are very few options given to member states in the EU Directive in terms of flexibility over national implementation.

The Explanatory Notes to the Minimum Tax Act confirm that GloBE implementation in Finland is as a completely new and separate type of tax.  As such, all provisions related to the GloBE rules will be in a standalone law. This includes administrative and procedural provisions which are not included in the Taxation Procedures Act but are included in the Minimum Tax Act.

Sections 23/25 of Chapter 1 of the Law provide that the definition of a Qualifying Income Inclusion Rule (QIIR) and Qualified Domestic Minimum Top-Up Tax (QDMTT) is based on the OECD Peer Review Process. As such the jurisdictions qualifying for transitional qualified status in the Central Record of Legislation, issued by the OECD on January 15, 2025 will be treated as having QIIRs and QDMTTs for Finnish GloBE purposes.

OECD Administrative Guidance

Whilst the EU Directive and the Finnish Minimum Tax Act state that administrative guidelines issued by the OECD are to be used as a source of interpretation, most of the detailed provisions of the OECD Administrative Guidance are not included in the original Minimum Tax Act. However, the December 2024 Amendment Law includes numerous aspects of the OECD Administrative Guidance.

The only aspects of the First Set of OECD Administrative Guidance included in the original Minimum Tax Act are:

-Excess negative tax carry-forward guidance (Article 2.7);

-Substitute loss carry-forwards (Article 2.8);

-Provisions on restricted tier one capital for insurance companies (Article 3.3); and

-The application of the tax transparency election to mutual insurance companies (Article 3.6)

The December 2024 Amendment Law includes:

-Deemed consolidation test (Article 1.2)

-Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4)

-Excluded Equity Gains or Loss and hedges of investments in foreign operations (Article 2.2)

-Excluded Dividends – Asymmetric treatment of dividends and distributions (Article 2.3)

-Debt release Election (Article 2.4)

-Equity Gain or loss inclusion election (Article 2.9)

-Allocation of taxes arising under a Blended CFC Tax Regimes (Article 2.10)

-Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders (Article 3.4)

-Simplification for Short-term Portfolio Shareholdings (Article 3.5)

There are no provisions of the Second Set of OECD Administrative Guidance included in the original Minimum Tax Act (aside from for QDMTT purposes), however the December 2024 Amendment Law includes:

-Tax Credits Guidance (MTTCs) (Article 2)

-SBIE (foreign rules and operating leases) (Article 3)

No aspects of the Third Set of OECD Administrative Guidance are included in the original Minimum Tax Act, however the December 2024 Amendment Law includes:

-Additional provisions for the Transitional CbCR Safe Harbour

-Additional Blended CFC Rules

-Provisions for mismatches between Fiscal Years of the UPE and another Constituent Entity

The Fourth Set of OECD Administrative Guidance is not included in the law, and the Explanatory Notes to the December 2024 Amendment Law states that further legislation will be issued to provide for this. This may also include the January 2025 Administrative Guidance. 

OECD Safe Harbours 

The Minimum Tax Act includes the Transitional CbCR Safe Harbour. The QDMTT Safe Harbour and the Transitional UTPR Safe Harbour are not included in the original enacted law but are included in the December 2024 Amendment Law.

The revised Chapter 9, Section 10 of the Law provides that the QDMTT Safe Harbour is based on the OECD Peer Review Process. As such the jurisdictions qualifying for transitional qualified status in the Central Record of Legislation, issued by the OECD on January 15, 2025 will be treated as qualifying for the QDMTT Safe Harbour for Finnish GloBE purposes (unless an entity is not subject to domestic top-up tax in the jurisdiction or that has been denied its obligation to pay top-up tax other than because of a domestic top-up tax provision).

Transitional penalty relief is also included in Section 4, Chapter 10 of the Minimum Tax Act.

Simplified calculations for Non-Material Constituent Entities are included in the December 2024 Amendment Law.

The December 2024 Amendment Law also includes additional rules for the Transitional CbCR Safe Harbour, as provided in the Third Set of OECD Administrative Guidance:

-Transitional CbCR – Purchase Accounting Adjustments (consistent reporting condition, goodwill impairment adjustment) (Article 1)

-Transitional CbCR – JVs (Article 2.2.1)

-Transitional CbCR – Same Financial Statements/Local Financial Statements for Statutory Reporting (Article 2.3.1)

-Transitional CbCR – Using different accounting standards (Article 2.3.2)

-Transitional CbCR – Adjustments to Qualified Financial Statements/Dividend Mismatches (Article 2.3.3)

-Transitional CbCR – MNEs not required to file CbC Reports (Article 2.3.4)

-Transitional CbCR – Qualified Financial Statements for Pes (Article 2.3.5)

-Transitional CbCR – Treatment of hybrid arbitrage arrangements (Article 2.6)

Elections in the OECD Administrative Guidance

Only the Excess Negative Tax Carry-Forward Election is included from the OECD Administrative Guidance in the original Minimum Tax Act.

Other elections included in the OECD Administrative Guidance are included in the December 2024 Amendment Law. As such, the following are included:

-Foreign Exchange Hedge Election;

-Portfolio Shareholding Election;

-Debt Release Election;

-Equity Investment Inclusion Election;

-QDMTT Safe Harbour Election;

-Transitional UTPR Safe Harbour Election.

Qualifying Domestic Minimum Top-Up Tax

Sections 12-19 of Chapter 2 of the Minimum Tax Act provide for a QDMTT (or at least a domestic minimum tax that is intended to be classed as a QDMTT) as of December 31, 2023.

Section 13 of Chapter 2 of the Minimum Tax Act provides that the method of calculation is to take the general top-up tax calculation. This is then subject to a number of specific amendments.

As provided in the OECD Administrative Guidance,  CFC taxes are not pushed down when considering the QDMTT ETR under Section 16 of Chapter 3 of the Minimum Tax Act. Sections 17-18 prohibit the pushdown of taxes for PEs, and Hybrid entities. This ties in with the Second Set of OECD Administrative Guidance. The December 2024 Amendment Law extends this pushdown restriction to taxes on profit distributions (aside from Finnish withholding taxes).

Under Section 14 of Chapter 2, top-up Tax under a QDMTT in respect of Joint Ventures is the whole amount irrespective of the fact that the UPE would only be subject to tax on its share of the Top-up Tax arising from Joint Ventures and JV subsidiaries.

The Finnish QDMTT applies the general GloBE rules to determine the accounting standard used. As such, the domestic minimum tax is calculated using the financial accounting standard of the UPE, and, if that is not practicable, on the basis of an accepted accounting standard or an approved accounting standard, if:

                -the constituent entity’s financial statements are prepared in accordance with that standard,

                 -the information contained in the financial statements is reliable; and

                 -permanent differences of more than EUR 1 million are conformed with the UPEs accounting standard.

Chapter 2, Section 15 of the Law provides that if the DMTT has been allocated to an investment entity under the GloBE rules, the tax is payable by a group entity located in Finland which is not an investment entity and which has a direct or indirect holding in the investment entity.

If there is more than one such entity, the amount of tax is apportioned among the entities in proportion to their shareholdings. If there are no non-investment entities in Finland the entity to which the DMTT has been allocated is liable for the tax.