Changes to the calculation of interest on the income taxes of corporations and joint administrations

Part of: Tax reforms

Interest is calculated for a longer period of time than before on back taxes, tax refunds and in cases where a taxpayer has neglected to file a tax return. Interest will be calculated on the basis of the actual number of days in a year and per tax year.

Corporate interest replaced by discounted late payment interest

Discounted late payment interest is charged from the first day of the second month following the end of the tax year

  • for prepayments, until the due date
  • for back taxes, until the due date, and
  • for reassessments, until the due date of the revised tax. If a corporation or joint administration has received a tax refund and a further tax liability arises in connection with reassessment, discounted late payment interest is charged on the refunded amount. The interest is calculated from the day following the date of the tax refund until the due date of the revised tax amount.

Interest will no longer be calculated by tax period. Discounted late payment interest is calculated by tax year.

Discounted late payment interest is subject to a minimum tax rate. This is the only change to how the interest rate is determined. The interest rate is the reference interest rate in force during the last six months preceding each calendar year pursuant to the Interest Act, plus two percentage points. However, the interest rate is always at least 0.5 per cent. In 2017, the discounted late payment interest is 2 per cent.

EUR 20 or the total amount of interest, whichever is higher, is deducted from any discounted late payment interest on back taxes imposed at the end of the tax year.

Discounted late payment interest cannot be claimed as expenses in income taxation.

Provisions on discounted late payment interest apply to corporations and joint administrations as of the 2017 tax year, and to other taxpayers as of the 2018 tax year.

Prepayments in the 2017 tax year

Provisions on discounted late payment interest apply to prepayments of corporations and joint administrations imposed by the Tax Administration on or after 1 November 2017. The provisions apply to the prepayments of other taxpayers imposed by the Tax Administration on or after 1 November 2018.

The calculation period for late-payment interest with relief will be gradually extended during the transition period in 2017. After the transition period, interest will not be imposed until one month has passed.

If the tax year of a corporation or benefit under joint administration ends between January and June 2017, prepayments imposed after the tax year will accrue late-payment interest with relief from the day following the tax return’s due date.

If the tax year of a corporation or benefit under joint administration ends in July or August 2017, prepayments imposed after the tax year will accrue late-payment interest with relief from 1 November 2017.

If the tax year of a corporation or benefit under joint administration ends between September and December 2017, prepayments imposed after the tax year will accrue late-payment interest with relief from the beginning of the second month after the tax year has ended.

Back taxes in the 2017 tax year

If the tax year of a corporation or joint administration ends on 30 September 2017 at the latest, discounted late payment interest will be calculated for the back taxes starting from the date following the deadline for filing a tax return; however, no later than from the date on which the act in question enters into force.

The calculation period for discounted late payment interest is extended stepwise during the transition period (the year 2017) until the interest-free period of the month is reached.

  • If the tax year of a corporation or joint administration ends between January and June 2017, discounted late payment interest will be calculated for the back taxes starting from the date following the deadline for filing a tax return.
  • If the tax year of a corporation or joint administration ends in July or August 2017, discounted late payment interest will be calculated for the back taxes starting from 1 November 2017.
  • If the tax year of a corporation or joint administration ends between September and December 2017, discounted late payment interest will be calculated for the back taxes starting from the beginning of the second month following the end of the tax year.
  • If the tax year of a corporation or joint administration ends in January or February 2017, the calculation of discounted late payment interest for the back taxes will end only on 26 February 2018, as the taxation of corporations and joint administrations ends exceptionally on 31 January 2018.

 

Example “A Oy”

The accounting period of “A Oy” is 1.2.2016–31.1.2017, which is the 2017 tax year of “A Oy”. The deadline for filing the tax return for the 2017 tax year by “A Oy” is 31 May 2017. Taxation of the tax year ending in January 2017 exceptionally ends only on 31 January 2018 .

Back taxes are imposed on “A Oy” based on the tax assessment. The due date for paying the back taxes is 26 February 2018. Discounted late payment interest will be calculated for the back taxes for the period 1.6.2017 – 26.2.2018.

Example “B Oy”

The accounting period of “B Oy” is 1.9.2016–31.8.2017, which is the 2017 tax year of “B Oy”. The deadline for filing the tax return for the 2017 tax year by “B Oy” is 31 December 2017.

Back taxes are imposed to “B Oy” based on the tax assessment. The due date for paying the back taxes is 25 July 2018. Discounted late payment interest will be calculated for the back taxes for the period 1.1.– 25.7.2018.

Corporate interest refunds replaced by interest on returns

Interest is calculated for any tax refunds paid by the Tax Administration.

Interest is calculated

  • from the first day of the second month following the end of the tax year
  • from the day following the payment date, if the tax bill was paid after the month following the end of the tax year.

Interest is calculated until the date of the tax refund, i.e. either the day on which the refund is taken from the Tax Administration’s account or used towards another tax liability. In the future, interest will be calculated on the basis of the actual number of days in a year.

Interest will no longer be calculated by tax period. Interest on returns is calculated by tax year.

The interest rate is the reference interest rate in force during the last six months preceding each calendar year pursuant to the Interest Act, minus two percentage points. However, the interest rate is always at least 0.5 per cent. In 2017, the amount of interest is 0.5 per cent.

Interest paid on tax refunds does not constitute taxable income in income taxation.

Provisions on interest on returns will be applied for the first time to any interest paid by the Tax Administration to corporations and joint administrations for the 2017 tax year. The new interest rate provisions concerning tax refunds will be applied to other taxpayers as of the 2018 tax year.

Tax refunds in the 2017 tax year

If the tax year of a corporation or joint administration ends on 30 September 2017 at the latest, discounted late payment interest will be calculated for the back taxes starting from the date following the deadline for filing a tax return; however, no later than starting from 1 November 2017.

If the tax year of a corporation or joint administration ends on 30 September 2017 at the latest, interest will be calculated for the tax refund starting from the date following the deadline for filing a tax return; however, no later than starting from 1 November 2017. If the tax has been paid later, the interest is calculated from the date following the payment date.

The calculation period for interest on the tax refund is extended stepwise during the transition period (the year 2017) until the interest-free period of the month is reached.

If the tax year of a corporation or joint administration ends between January and June 2017, interest will be calculated for the tax refund starting from the date following the deadline for filing a tax return. If the tax has been paid later, the interest is calculated from the date following the payment date.

If the tax year of a corporation or joint administration ends in July or August 2017, interest will be calculated for the tax refund starting from 1 November 2017.  If the tax has been paid later, the interest is calculated from the date following the payment date.

If the tax year of a corporation or joint administration ends between September and December 2017, interest will be calculated for the tax refund starting from the beginning of the second month following the end of the tax year. If the tax has been paid later, the interest is calculated from the date following the payment date.

If the tax year of a corporation or joint administration ends in January or February 2017, the calculation of interest on the tax refund will end only on 7 March 2018, as the taxation of corporations and joint administrations ends exceptionally on 31 January 2018.

Late payment interest replaces penalty interest and surtax

Late payment interest is payable on taxes paid after the due date. Tax payments made after the due date are subject to late payment interest calculated from the day after the due date until the date of the payment.

Late payment interest is also calculated in connection with tax reassessment in cases where a taxpayer

  • has failed to file a tax return
  • has filed an incomplete, misleading or false tax return
  • has failed to declare otherwise.

If the taxpayer has neglected their reporting duty, late payment interest will be calculated for a longer period than before: the interest will be calculated from the date following the first due date for the back taxes until the due date for the amount of taxes imposed on the basis of the reassessment.

The late payment interest rate is determined in the same way as penalty interest and surtax. The late payment interest rate is the reference interest rate in force during the last six months preceding each calendar year pursuant to the Interest Act, plus seven percentage points. In 2017, the amount of interest is 7 per cent. The late payment interest has no minimum limit.

The provisions on late payment interest will apply for the first time to the unpaid taxes of corporations and joint administrations as of 1 November 2017, and to the unpaid taxes of other taxpayers as of 1 November 2018.

Before the aforementioned date, interest will be calculated in accordance with the provisions in force before the entry into force of the legislative reform. If overdue taxes remain unpaid by a corporation or joint administration on 31 October 2017, and they are not paid until 1 November 2017 or thereafter, the EUR 3 minimum for penalty interest will not apply to the overdue tax.

Example: How late payment interest is calculated during the transition period

A limited company uses the calendar year as its tax year. The limited company’s prepayments are EUR 500 per month. The limited company only pays its October 2017 prepayment on 20 November 2017.

The late October prepayment is subject to

  • EUR 0.78 in penalty interest for October 2017 – the EUR 3 minimum for penalty interest does not apply due to the transitional provisions
  • EUR 1.92 in late payment interest.

The total penalties for late payment amount to EUR 2.70.

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