Reportable cross-border arrangements

This is an unofficial translation. The official instruction (record number VH/1283/00.01.00/2020) is drafted in Finnish and Swedish languages.

This instruction deals with questions related to the interpretation of regulation concerning the Act on Reportable Arrangements in the Field of Taxation (1559/2019) regarding a service provider’s obligation to inform and a taxpayer’s reporting obligation, and amendments made to the Act on Assessment Procedure. Instructions on the reporting procedure are available in data record specification DAC6 - Notification of a reportable arrangement (VSDAC6DC) on electronic reporting, and in the instruction Notification of a reportable arrangement, instructions for filling in the form.

1 Background

1.1 Act on Reportable Arrangements in the Field of Taxation, and amendments to the Act on Assessment Procedure

The Act on Reportable Arrangements (1559/2019) entered into force on 1 January 2020. At the same time, new provisions were added to the Act on Assessment Procedure (1558/1995) on a service provider’s and a taxpayer’s reporting obligation.

The new regulation implements the reporting obligation concerning certain cross-border tax planning structures as required by Directive (EU) 2018/822 (amendment to the “Administrative Assistance Directive”, DAC6 Directive). The main aim of this Directive is to provide tax authorities in the European Union´s Member States with information about cross-border tax planning arrangements that may contain elements of tax evasion or avoidance. The directive is based on OECD´S BEPS - project which concerned the erosion of the tax base and the transfer of profits, in order to prevent aggressive tax planning and international tax evasion. The Directive imposes on EU Member States the obligation to collect details concerning reportable cross-border arrangements from those subject to a reporting obligation. These details are exchanged between Member States on a quarterly basis, through the central directory implemented by the European Commission.

1.2 General information about the reporting obligation

According to the Act on Reportable Arrangements, cross-border arrangements that may involve characteristics of tax avoidance or tax evasion must be reported to the Finnish Tax Administration. Arrangements that fall within the scope of application of the Act involve cross border tax planning. Reportable arrangements can be fully compliant with the law, and reporting does not automatically lead to taxation measures. It is not, however, necessary to evaluate when reporting whether the reportable arrangement is in accordance with the provisions of tax law. The (DAC6) return is not considered as a service provider´s or tax payer´s position on the interpretation of tax provision as regards the arrangement at handThe reporting is obligatory when

1. the case involves a cross-border arrangement, i.e. the arrangement concerns more than one country (in this guidance, ‘country’ refers to both countries and other jurisdictions)
2. the arrangement fulfils any of the distinguishing hallmarks laid down in Chapter 3 of the Act on Reportable Arrangements.

Reportable cross-border arrangements must be reported to the Tax Administration. The reporting obligation primarily concerns service providers that plan, market or manage reportable arrangements (see Chapter 4). A taxpayer is subject to a reporting obligation only when the arrangement does not include a service provider with a reporting obligation or when the service provider of the arrangement has been exempted from the obligation to inform due to legal professional privilege (see Chapter 5). A cross-border arrangement must be reported when the arrangement fulfils at least one of the hallmarks laid down in the Act (see Chapter 3). With regard to the reporting obligation, the reason why the arrangement has been planned or implemented is irrelevant.

The scope of reporting includes arrangements that have been implemented after the Directive’s entry into force on 25 June 2018. Arrangements implemented between 25 June 2018 and 30 June 2020 must be reported to the Tax Administration by 31 August 2020 at the latest. A 30-day deadline will apply to reporting as of 1 July 2020 (see Chapter 7).

2 Scope of application and certain definitions

2.1 Scope of application of the Act on Reportable Arrangements

The Act on Reportable Arrangements is applied to arrangements that can have an impact on the amount or determination of taxes laid down in the ‘Administrative Assistance Directive’ (2011/16/EU). Another condition is that the arrangement concerns more than one Member State of the European Union or one EU Member State and a third country, where at least one of the following conditions is met (section 1, subsection 2):

1. not all of the participants in the arrangement are resident for tax purposes in the same jurisdiction;
2. one or more of the participants in the arrangement is simultaneously resident for tax purposes in more than one jurisdiction;
3. one or more of the participants in the arrangement carries on an activity in another jurisdiction without being resident for tax purposes or creating a permanent establishment situated in that jurisdiction;
4. one or more of the participants in the arrangement carries on an activity in another country without being resident for tax purposes or creating a permanent establishment situated in that jurisdiction.

In the Act on Reportable Arrangements and in this guidance, ‘person’ refers to natural persons, legal persons, and legal arrangements or any other similar structures (section 2, subsection 1, paragraph 1).

The Act is also applied to arrangements that (section 1, paragraph 3):

1. exert a possible impact on obligations concerning the reporting of financial account information under section 17a–d of the Act on Assessment Procedure or similar obligations in another country; or
2. exacerbate the identification of beneficial ownership.

An arrangement must be reported if it meets any of the hallmarks laid down in Chapter 3 of the Act on Reportable Arrangements (section 3). Since the Act is only applied to cross-border arrangements, a purely domestic arrangement needs not be reported to the Tax Administration, even if it meets any of the hallmarks. For example, if a Finnish permanent establishment of a foreign company implements a purely domestic arrangement in Finland, the arrangement is not reportable. Similarly, when a foreign permanent establishment of a Finnish company implements a purely national arrangement in the country where it is located, the arrangement is not reportable.

2.2 Definition of an arrangement

The concept of an ‘arrangement’ is not defined in the Act on Reportable Arrangements or in the DAC6 Directive. The concept has not been defined in the law, in order to prevent evading the regulation solely on procedural grounds (Government proposal HE 69/2019, rationale for section 1). This is why an ‘arrangement’ as referred to in the Act must be broadly understood. An arrangement can be any business transaction, system, measure, contract, subsidy, understanding, promise, commitment, event or other transaction. In practice, arrangements falling within the scope of the Act are determined through hallmarks. An arrangement can also include a series of arrangements, and an arrangement can involve more than one step or part (Government proposal HE 69/2019, rationale for section 1). However, the reporting obligation always requires that the arrangement concerns at least two jurisdictions and meets at least one of the hallmarks laid down in the Act.

2.3 Cross-border arrangement

The Act on Reportable Arrangements is only applied to cross-border arrangements. Domestic arrangements do not fall within the scope of the reporting obligation. An arrangement crosses borders if it concerns more than one EU Member State or one EU Member State and a third country (section 1, subsection 2). In addition, the person(s) participating in the arrangement must have a connection to several countries in the form of residence for tax purposes, permanent establishment or engagement in business activity (Government proposal HE 69/2019, rationale for section 1).

In other words, the persons participating in the arrangement have an adequate connection to several countries through their residence for tax purposes when not all of the participants in the arrangement are resident in the same country, or when one or more of the participants is simultaneously resident in more than one country. A person may have double residence, for instance, when one jurisdiction finds that the corporate entity is a resident, because it was established there, and another country deems that the corporate entity is resident there due to the place of management. A natural person can also have double residence, for more information, please see the Tax Administrations guidance on Tax residency and nonresidency.

An arrangement crosses borders also when one or more of the participants in the arrangement carries out a business in another country through a permanent establishment situated in that country and the arrangement forms at least part of the business of that permanent establishment.

An arrangement also crosses borders when one or more of the participants in the arrangement carries out a business in another country or jurisdiction without being resident for tax purposes or creating a permanent establishment situated in that country or jurisdiction.

2.4 Reportable arrangement

A cross-border arrangement must be reported when it meets at least one of the hallmarks laid down in Chapter 3 of the Act on Reportable Arrangements (section 3). Hallmarks are discussed in Chapter 3 of this guidance.

A reportable arrangement consists of all functions that, must be performed in order to meet a hallmark or to obtain a possible tax advantage. An arrangement is reported as a whole, and individual transactions or parts of the arrangement included in it are not reported separately. An individual transaction may fall within the scope of the reporting obligation if implementing it alone is enough to obtain a tax advantage and to meet a hallmark.

Ordinary intra-group business transactions that cross borders can be part of a reportable arrangement, if any of the hallmarks in the Act is met.

Instead, the following situations, for instance, are not reportable arrangements:

• Strategic documents on taxation written at a general level, such as a group's internal guidelines on tax policy, since they do not ordinarily include detailed information about tax planning structures.
• Transfer pricing documentation does not either ordinarily include information about tax planning structures.

2.5 Marketable arrangement

A ‘marketable arrangement’ is a cross-border arrangement that is designed, marketed, ready for implementation or made available for implementation without a need to be substantially customised (section 1, subsection 1, paragraph 9). A marketable arrangement must be reported only if it crosses borders and meets any of the hallmarks laid down in Chapter 3 of the Act on Reportable Arrangements. A marketable arrangement is not designed for a specific taxpayer, instead it is designed to be ready for use by several taxpayers without substantial customisation. If an arrangement is designed for a specific taxpayer, it is not a marketable arrangement but a ‘bespoke arrangement’.

Reporting of a marketable arrangement involves special characteristics (see section 7.3). A marketable arrangement always meets the hallmark in section 14 of the Act on Reportable Arrangements (standardised documentation and structures of the arrangement), but even other hallmarks may be applicable to a marketable arrangement.

3 Hallmarks

3.1 Generic and specific hallmarks

A cross-border arrangement must be reported if it meets at least one hallmark. Provisions on hallmarks are laid down in Chapter 3 of the Act on Reportable Arrangements. Hallmarks are divided into generic and specific hallmarks. Generic hallmarks are characteristics that are often included in widely marketed and utilised arrangements, or new and innovative tax planning arrangements. Specific hallmarks are primarily aimed at intervening in the utilisation of known deficiencies and vulnerabilities in tax systems and of commonly used procedures in tax planning arrangements (Government proposal HE 69/2019, rationale for section 3). Provisions on generic hallmarks are laid down in sections 12–14 and specific hallmarks in sections 15–22 of the Act on Reportable Arrangements.

Some of the hallmarks are applied as such, some are linked to the “main benefit test” (see section 4.2).

3.2 Main benefit test

In the Act on Reportable Arrangements, the “main benefit test” means evaluating whether obtaining a tax advantage is, having regard to all relevant facts and circumstances, the main benefit or one of the main benefits a person may reasonably expect to derive from an arrangement (section 2, subsection 1, paragraph 3). The purpose of this provision is to exclude from reporting arrangements where there is no tax advantage excpected or tax advantage that is of minor significance (Government proposal HE 69/2019, rationale for section 3).

The main benefit test includes a case-specific overall review of circumstances related to a cross-border arrangement, in which the expected tax advantage is compared to the circumstances and overall effects of the arrangement.

The following hallmarks require that the conditions for the main benefit test are fulfilled:

• Condition of confidentiality
• Fee linked to a tax advantage
• Standardised documentation and structures of the arrangement
• Use of losses
• Conversion of income
• Round-tripping of funds
• Differences in tax treatment when
  • the recipient is not resident for tax purposes in any country or jurisdiction; or
  • the recipient’s country is included in a list of jurisdictions which have been assessed by the EU or the OECD as being non-cooperative jurisdictions.

Hallmarks that do not require an evaluation of the main benefit are as follows:

• Differences in tax treatment when
  • the recipient’s country does not impose any corporate tax or imposes corporate tax at the rate of zero or almost zero;
  • the payment benefits from a full exemption from tax in the recipient’s country;
  • the recipient may benefit from a specific tax relief.
• Deductions and exemption from double taxation in several countries or jurisdictions
• Hallmarks related to automatic exchange of information
• Beneficial owner
• Hallmarks concerning transfer pricing

The main benefit test is specifically related to the reportability of arrangements. The conditions for the fulfilment of the test differ from national provisions on tax evasion (such as sections 28 and 52(h) of the Act on Assessment Procedure) and from the general tax evasion provision concerning tax treaties (the principle purpose test, OECD Action 6 BEPS, in Article 29(9) of the 2017 OECD Model Tax Convention). The conditions for the main benefit test can be fulfilled even if the application requirements for the aforementioned provisions on tax evasion are not fulfilled.

3.2.1 Tax advantage referred to in the Act

A tax advantage referred to in the Act on Reportable Arrangements can be, for example, benefitting from a lower tax rate, exemption from income tax, a deduction of expenses, a tax loss, avoidance of tax at source, a deduction of foreign tax, or another financial benefit obtained in taxation.

A tax advantage must be related to direct taxes imposed by a Member State, its regions or local authorities, or imposed on their behalf. When an arrangement includes a party located in a country outside the EU, similar taxes imposed there are also taken into account in an evaluation of a tax advantage. Value added tax, customs tax, and excise duty are outside the scope of application of the Act on Reportable Arrangements, so they are irrelevant in an evaluation of a tax advantage. (Government proposal HE 69/2019, rationale for section 2)

A tax advantage sought from an arrangement can be realised in Finland, in another EU Member State, or in a country outside the EU (Government proposal HE 69/2019, rationale for section 2)

If the arrangement utilises a beneficial provision specifically legislated for such circumstances in the taxpayer's country of residence, the tax advantage does not meet the main benefit test. Instead, if the tax advantage obtained is ambiguous or contrary to the purpose of the Act, it falls within the scope of the reporting obligation (Finance Committee Report 19/2019).

3.2.2 Evaluation of main benefits of a tax advantage

According to the government proposal, the fulfilment of the conditions for the main benefit test is evaluated on the basis of objective criteria (Government proposal HE 69/2019, rationale for section 2). A cross-border arrangement is reviewed objectively, on the basis of observable facts and circumstances. Even an outsider should be able to see that there is a tax advantage obtained from the arrangement. A person’s reasons for utilising an arrangement are irrelevant in terms of the evaluation of the main benefit test (Government proposal HE 69/2019, rationale for section 2).

An evaluation is based on facts and circumstances known by the service provider or taxpayer upon the design phase of the arrangement. The test is met if there will be an expected tax advantage. It is irrelevant whether the tax advantage will ultimately be obtained from the arrangement.(Government proposal HE 69/2019, rationale for section 2)

An evaluation if the tax advantage is the main benefit or one of the main benefits is made as a case-specific overall evaluation, and the fulfilment of the conditions for the main benefit test usually cannot be evaluated by calculated measurement and comparison of the benefits produced by the arrangement, such as by means of percentages.

3.2.3 Situations in which a tax advantage is the main benefit

The requirement for the main benefit is fulfilled when the expected tax benefit is of significant value and one the principal benefits obtained from the arrangement. A tax advantage is reviewed in proportion to the circumstances and the overall effect of the arrangement as a whole. If the expected tax advantage is of minor significance in comparison with the overall benefit expected from the arrangement, then, according to the government proposal, the conditions for the main benefit test are not fulfilled. (Government proposal HE 69/2019, rationale for section 2).

The conditions for the main benefit test are fulfilled when the arrangement involves tax planning means that are in conflict with the purpose of the tax system. Similarly, the conditions for the main benefit test are fulfilled when the arrangement involves tax planning means that are in conflict with the purpose of the law applied in the arrangement or the purpose of provisions concerning the tax assessment procedure. (Finance Committee Report 19/2019) 

In other words, the conditions for the main benefit test are fulfilled when a tax advantage is one of the main advantages expected, and the case does not involve a tax advantage specifically laid down in the legislation of the taxpayer’s country of residence or accepted in established legal and taxation practice.

A tax advantage can be one of the main benefits of an arrangement when the seeking of the tax advantage has affected the way in which the arrangement has been implemented. A tax advantage is always the main benefit when the seeking of the tax advantage is the specific reason why the arrangement has been undertaken.

3.2.4 Situations in which a tax advantage is not the main benefit

The conditions for the main benefit test are not fulfilled when the arrangement involves tax planning means that have been accepted in legal and taxation practice (Finance Committee Report 19/2019). When a tax planning arrangement has been accepted in legal and taxation practice in the taxpayer’s country of residence, the arrangement is then also deemed to be in line with the law applied to the arrangement and its purpose. If such an arrangement is part of a larger whole of arrangements that also generates other tax advantage referred to in the law, and the tax advantage is the main benefit expected to be derived from the entire arrangement or one of the main benefits, the arrangement must, however, be reported as part of this whole.

The conditions for the main benefit test are not fulfilled in situations that are in line with the legislation in the taxpayer’s country of residence and its purpose. One example of such an arrangement comprises provisions concerning deduction of expenses according to tax legislation. When a taxpayer makes payments to a foreign group company, this does not automatically involve a tax advantage according to the definition of the main benefit test. However, if an arrangement that is ostensibly in line with provisions involves characteristics or other arrangements that produce an advantage contrary to the purpose of the provision concerning the deduction of the expense, such as an artificial deduction or deduction of an expense belonging to another taxpayer, this is a tax advantage referred to in the test. (Finance Committee Report 19/2019)

3.3 Generic hallmarks of the main benefit test

3.3.1 Condition of confidentiality

If the relevant taxpayer or a person participating in an arrangement has agreed not to expose to other service providers, the Tax Administration or tax authorities in other countries how a tax advantage can be obtained through the arrangement, and the arrangement fulfils the conditions for the main benefit test (section 12). The condition of confidentiality protects, for example, a feature that produces value to the service provider of the arrangement.

The condition can be specifically stated in a contract or verbally agreed on. The condition of confidentiality does not mean a general condition used in a contract that the parties agree not to expose information they have obtained concerning the other party. Instead, it is essential for the application of the hallmark that the confidentiality clause protects the new or innovative tax planning features included in the arrangement.

3.3.2 Fee linked to a tax advantage

An arrangement is reportable if the fee or other compensation received by a service provider is determined on the basis of the amount of tax advantage obtained from the arrangement, or if the amount of the fee or other compensation received by the service provider depends on whether actual tax advantage is obtained through the arrangement (section 13). In addition, the arrangement needs to meet the main benefit test. According to the government proposal, this hallmark is applicable, for instance, when a service provider’s fee is determined, in full or in part, on the basis of a tax advantage or when the service provider is obliged to refund a payment received, in full or in part, if the tax advantage sought does not materialise (Government proposal HE 69/2019, rationale for section 13).

In principle, assistant services related to tax returns or the payment or refund of tax, such as assistance with an application for a refund of tax at source, do not fulfil the conditions for this hallmark, even if the representative’s fee is linked to a tax advantage. Services like this do not involve the planning or implementation of a reportable arrangement, but rather assisting a taxpayer in an administrative procedure. However, an application for a refund of tax at source can be part of the implementation of a reportable arrangement on the basis of another hallmark, such as with an application for relief from double taxation in several countries, as referred to in the hallmark in section 19 of the Act on Reportable Arrangements. Such a situation may also fulfil the hallmarks in section 13.

3.3.3 Standardised documentation and structures of the arrangement

An arrangement is reportable if it involves substantially standardised documentation or structures, and the arrangement is available to more than one relevant taxpayer without a need to be substantially customised for implementation, and the arrangement fulfils the conditions for the main benefit test (section 14).

In practice, this hallmark involves reporting of marketable arrangements that can be implemented by several taxpayers without a significant customisation. For marketable arrangements, please see section 2.5 of this instruction. Since this hallmark involves reporting of only arrangements that fulfil the main benefit test, merely the fact that a contract used in an arrangement is standardised does not make the arrangement reportable.

For instance, contacts that are typically used in the financial sector and largely standardised between a customer and a bank, such as housing loan agreements, do not usually fulfil the conditions of the test, since any tax benefit possibly achieved from said contracts is usually irrelevant in comparison with other benefits achieved with the agreements (Government proposal HE 69/2019, rationale for section 14). Similarly, use of ordinary standardised contracts in other sectors, such as ordinary agreements concerning trading in goods or services, does not generate a reporting obligation.

3.4 Specific hallmarks of the main benefit test

3.4.1 Use of losses

An arrangement is reportable if a person participating in the arrangement acquires a loss-making company, discontinues its main activity, and uses its losses in order to reduce their taxable income, including through a transfer of those losses to another country or jurisdiction or by the acceleration of the use of those losses and the arrangement fulfils the conditions for the main benefit test (section 15).

According to the government proposal, this hallmark refers to a situation in which a person participating in an arrangement acquires a loss-making company and discontinues its main activity in order to use the company’s losses to reduce their own taxable income. In this context, measures reducing the taxable income also include a transfer of losses to be used in another country or jurisdiction, and use of losses at an accelerated rate. ’Hallmark’ refers to a business transaction of an artificial nature whose objective is exclusively or almost exclusively to obtain a tax advantage. No clear time limit within which the acquired activity should be discontinued for the hallmark’s conditions to be fulfilled has been stipulated. However, the hallmark’s conditions are not fulfilled if the activity of the company acquired continues for several years after the acquisition. Considering the intended use of the hallmark and to prevent easy evasion of the hallmark, depending on the circumstances and the case, the hallmark’s conditions can also be deemed to be fulfilled in situations where the main activity of the loss-making company is discontinued before the future acquisition transaction. (Government proposal HE 69/2019, rationale for section 15)

If the purpose of an acquisition between independent parties is to buy a competitor out of the market, and the main objective is not utilisation of losses, the case does not constitute a reportable arrangement, in principle.

3.4.2 Conversion of income

An arrangement is reportable if it has the effect of converting income into capital, gifts or revenue which are taxed at a lower level or exempt from tax and the arrangement fulfils the conditions of the main benefit test (section 16). According to the government proposal, this hallmark applies to, for instance, arrangements by which earned income is converted into capital income, income is converted into a gift or dividends are converted tax-exempt or to be taxed at a lower level (Government proposal HE 69/2019, rationale for section 16).

The applicability of the hallmark does not require that a tax advantage is generated in Finland. However if the taxpayer´s country of tax residence grants particular tax subsidies to the arrangement at hand in its legislation the arrangement is not reportable (Government proposal HE 69/2019, rationale for section 16).

According to the government proposal, measures that can be implemented in two or more alternative ways all in accordance with the tax law and its purpose and one of the alternatives is more tax efficient than the others, are not reportable even though the most efficient alternative would be chosen.(Government proposal HE 69/2019, rationale for section 16).

3.4.3 Round-tripping of funds

An arrangement which includes circular transactions resulting in the round-tripping of funds, namely through involving interposed entities without other primary commercial function or transactions that offset or cancel each other or that have other similar features, and the arrangement fulfils the conditions for the main benefit test (section 17).

According to the government proposal, this hallmark is based on round-tripping of funds in order to obtain tax advantages. The hallmark refers to, first of all, arrangements that include circular transactions if they involve interposed entities without other primary commercial function. This refers to situations in which funds are circulated through another country with the purpose of bringing the funds within the scope of more advantageous tax treatment applicable to foreign investments. (Government proposal HE 69/2019, rationale for section 17). It also involves reporting of arrangements that include transactions which offset or cancel each other or that have other similar features. However, on the basis of this hallmark, an arrangement is reportable only when it fulfils the conditions for the main benefit test.

3.5 Hallmarks related to cross-border transactions  

3.5.1 Differences in tax treatment

An arrangement is reportable if it involves a deductible cross-border payment made between two or more associated persons if at least one of the following conditions occurs (section 18):

1. the recipient is not resident for tax purposes in any country of tax jurisdiction;
2. the recipient is resident for tax purposes in a country or jurisdiction, but
   1. that country or jurisdiction either does not impose any corporate tax or imposes corporate tax at the rate of zero or almost zero; or
   2. that country or jurisdiction is included in a list by the Council of the European Union as being a non-cooperative jurisdiction in tax matters or assessed by the Organisation for Economic Co-operation and Development (OECD) as being non-cooperative;
3. the payment benefits from a full exemption from tax in the country or jurisdiction where the recipient is resident for tax purposes;
4. with regard to this payment, the recipient may benefit from a specific tax relief in the country or jurisdiction where the recipient is resident for tax purposes.

However, the arrangement is reportable on the basis of the hallmarks in subsection 1, paragraph 2, point (a) and in paragraphs 3 and 4 only if it fulfils the conditions for the main benefit test.

According to the government proposal, differences in tax treatment mean that the recipient can deduct the payment in their taxation in one jurisdiction, but income corresponding to the deduction is possibly not taxed in the recipient’s country of tax recidence. The hallmark’s scope of application may include ‘hybrid arrangements’ referred to in the Council Directive (EU) 2017/952 amending Directive (EU) 2016/1164 as regards differences in tax treatment with third countries. However, in this provision differences in tax treatment are reviewed more broadly than in said Directive, and the hallmarks also refer to measures other than hybrid arrangements. (Government proposal HE 69/2019, rationale for section 18). The hallmarks’ scope of application does not include investments in foreign investment funds or partnership-type fund structures, because these investments are not regarded as deductible payments referred to in the provision. The fact that an investment can later be deducted from the investment’s redemption price when calculating capital gain is irrelevant in an evaluation of the applicability of this hallmark.

On the basis of the hallmark, it is necessary to report arrangements that involve deductible cross-border payments between two or more associated persons. In addition, at least one of the conditions laid down in paragraph 1–4 needs to ne fulfilled. The fulfilment of the main benefit test is also required with regard to paragraphs 2a, 3 and 4. With regard to these paragraphs, the conditions of the test are not fulfilled only because the conditions for said paragraph are fulfilled, instead the arrangement must also include other features indicating the seeking of a tax advantage (Government proposal HE 69/2019, rationale for section 18). With regard to paragraphs 1 and 2b, the arrangement needs not to fulfil the conditions for the main benefit test.

According to the Act on Reportable Arrangements, an ‘associated enterprice’ means a person who participates in the management of another person by being in a position to exercise a significant influence over the other person, a person who holds more than 25% of the voting rights of the other person, a person who has a direct or indirect holding of more than 25% in the other person, or who is entitled to 25% or more of the profits of another person (section 2, subsection 1, paragraph 8). All the persons who are in a relationship described above with the same person are regarded as associated enterprices.

Indirect participations is determined by multiplying the rates of holding through successive tiers. Any person who has a relationship referred to in said paragraphs with several persons is regarded as an associated person in terms of all these persons. If a person acts together with another person in respect of the voting rights or capital ownership of an entity, that person is deemed to hold a participation in all of the voting rights or capital ownership of that entity that are held by the other person. A person holding more than 50% of the voting rights is deemed to hold 100%. An individual, his or her spouse and his or her lineal ascendants or descendants shall be treated as a single person (Government proposal HE 69/2019, rationale for section 2)

The conditions for paragraph 1 in this hallmark are met  when the recipient of a deductible payment is not a resident for tax purposes in any jurisdiction(section 18, subsection 1, paragraph 1).  That can be due to recipient´s nature under civil law. The hallmark is met for example when there is  a transparent unit and its owners located in the same jurisdiction are not taxed for the income of of the transparent unit.

The conditions for paragraph 2a of the hallmark are fulfilled when the recipient of the payment is a resident for tax purposes in a country, but the said country does not impose any corporate tax or imposes corporate tax at the rate of zero or almost zero, in practice less than one percent (Government proposal HE 69/2019, rationale for section 18). On the basis of this paragraph, An arrangement is reportable under this paragraph for example when a group company makes payments to another group company located in a country with a zero tax rate. However, such a payment must be reported only if the conditions for the main benefit test are fulfilled, i.e. a tax advantage is one of the main benefits in the arrangement that involves the payment. An arrangement must be reported when the reporting threshold is exceeded (see Chapter 7). Recurring payments related to the same  arrangement need not be reported multiple times. Corporate taxation is usually collected based on a company’s profits, but it can also be collected based on the distribution of profit, as in Estonia. Payments made to an Estonian company are not generally reportable on the basis of this hallmark.

The conditions for the hallmark in paragraph 2b are fulfilled when the recipient is a resident for tax purposes in a country that is in the European Union´s  or  in the OECD´s list of non-cooperative jurisdictions (section 18, subsection 1, paragraph 2b). The list of non-cooperative jurisdictions refers to the European Union’s list on non-cooperative jurisdictions and to the OECD’s list List of Unco-operative Tax Havens concerning non-cooperative jurisdictions in tax matters. The purpose of the EU’s list is to promote good governance in the tax sector globally. On 5 December 2017, the European Council approved a list that includes countries and jurisdictions outside the EU that are not committed to amending their taxation in accordance with the good governance model. The OECD’s list includes countries and jurisdictions that are not committed to international transparency and exchange of information in tax matters. (Government proposal HE 69/2019, rationale for section 18)

In practice, there may be situations in which a tax-exempt entity acting as a financier, is associated due to the circumstances  with the borrower, as referred to in this Act. The Nordic Investment Bank or the European Investment Bank are for example such entities that are stipulated to be tax-exempt. Such situations do not constitute arrangements referred to in regulation which may involve characteristics of tax avoidance or tax evasion. Therefore, cross-border payments related to the payment of such a loan where the recipient is such an entity or another similar entity are not regarded as reportable arrangements.

The conditions for the hallmark in paragraph 4 are fulfilled when a preferential tax regime may be applicable to a payment in the country where the recipient is a resident for tax purposes (section 18, subsection 1, paragraph 2). According to the government proposal, this concept is similar to the concept of “preferential tax regime” in Action 5 (Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance) concerning an evaluation of harmful tax competition and the improvement of the openness of tax system and taxation in the BEPS Action Plan. Preferential tax regime refers to the regulation diverging from the said country’s general tax system where the tax treatment on its basis is more beneficial than the general tax system. Preferential tax regime can be, for example, industry-specific or income type specific tax reliefs, such as a ‘patent box’ system or reliefs provided for foreign investments. (Government proposal HE 69/2019, rationale for section 18

3.5.2 Deductions and exemption from double taxation in several countries or jurisdictions

An arrangement is reportable if (section 19):

1. deductions on the same assets are claimed in more than one country or jurisdiction;
2. relief from double taxation in respect of the same item of income or capital is claimed in more than one country or jurisdiction; or
3. the arrangement includes transfers of assets and there is a material difference in the amount being treated as payable in consideration for the assets in those countries or jurisdictions involved.

A cross-border arrangement where the deductions are claimed on the same assets in more than one country or jurisdiction is reportable (section 19, subsection 1). According to the government proposal, the hallmark refers to situations where the countries related to the arrangement have different rules regarding the deductibility of the acquisition costs of assets which can lead to the same deduction being claimed twice or multiple times. This refers to differences in tax treatment, and this hallmark’s scope of application may include “hybrid arrangements” referred to in Council Directive (EU) 2017/952, if the case involves differences in tax treatment with third countries. The hallmark can also be applicable to other measures than hybrid arrangements. (Government proposal HE 69/2019, rationale for section 19)

The implementation of Directive (EU) 2017/952 in EU Member States eliminates deductions based on hybrid arrangements and claimed on two or more occasions in the taxation of companies located in Member States. At the planning and implementation phase of an arrangement, it is not necessarily clear how regulation based on Directive (EU) 2017/952 is applicable to the arrangement. Therefore, even such hybrid arrangements are, in principle, reportable arrangements when the conditions for the hallmark are fulfilled.

According to the government proposal, on the basis of this hallmark no situations are reported in which the same deduction is made in the country where both a company’s permanent establishment and its head office are located, if the country where the head office is located taxes the income of the permanent establishment and eliminates double taxation with the credit method. In such a case, both the permanent establishment’s income and expenses are taken into account when calculating the head office’s taxable income, so the case does not involve only a double deduction of the assets (Government proposal HE 69/2019, rationale for section 19).

An arrangement is reportable if relief from double taxation is applied for the same income or capital in several countries (section 19, paragraph 2). According to the government proposal, this hallmark is applicable to, for example, “hybrid transfers” referred to in Council Directive (EU) 2017/952 where it may be possible to claim multiple credits of tax at source (Government proposal HE 69/2019, rationale for section 19). A situation in which a credit for foreign tax is applied for in the country where the permanent establishment is located and thereafter in the head office’s country of residence, when the credit method is applied in a tax treaty to eliminate double taxation, is not regarded as a reportable arrangement on the basis of this hallmark.

An arrangement that includes a transfer of assets from one country to another, and there is a material difference in the amount being treated as payable in consideration for the assets in those countries (section 19, paragraph 3). According to the government proposal, this involves a situation in which countries related to the arrangement value assets transferred in ways that differ from each other. This can lead to either double taxation or a situation where a transaction is not taxed in any country if the countries do not cooperate to agree on the amount payable for the assets transferred. For instance, when assets are sold to another country, it is possible that the original country where the assets are located and the country to which the assets would be transferred use different discount rates when calculating the net present value of proceeds obtained from the assets.

3.6 Hallmarks related to automatic exchange of information

On the basis of hallmarks related to automatic exchange of information, it is necessary to report arrangements that are related to avoidance or evasion of the obligation to inform concerning financial accounts at financial institutions (section 20). Provisions on these “CRS, DAC2 and FATCA obligations to inform” are available in sections 17a–17d of the Act on Assessment Procedure

Arrangements according to this provision are reportable if they lead to, or if they can be presumed to lead to, avoidance or evasion of the obligation to report financial account information, or if they can be presumed to be used to avoid or evade this obligation to inform, or if they utilise the lack of such provisions. Reportable arrangements include the following measures, for instance:

• Use of an account, product or investment that is not and which is not intended to a financial account but which has materially similar characteristics as a financial account. A ‘financial account’ refers to an account that is specified, in detail, in the regulation mentioned above and maintained by a financial institution.
• Transfer of financial accounts or assets to jurisdictions not bound by a demand for automatic exchange of financial account information with the country of residence of the relevant taxpayer, or use of such jurisdictions to otherwise avoid obligations imposed by regulation concerning automatic exchange of information referred to in this section.
• Measures by which income and capital are reclassified as products or payments to which automatic exchange of financial account information does not apply. However, a situation in which payments or products related to investing or financing, for instance, are kept in a financial account of a financial institution subject to the CRS and FATCA reporting obligation, or paid on the basis of such assets in the account, is not a reportable arrangement.
• Transfer of a financial institution, financial account or such assets to a financial institution, financial account or assets, or conversion into a financial institution, financial accounts or assets to which reporting under automatic exchange concerning a financial account does not apply.
• Use of legal subjects, arrangements or structures that eliminate or are intended to eliminate reporting by one or more account holders or controlling persons on the basis of automatic exchange concerning a financial account.
• Measures that undermine procedures concerning financial institutions’ obligation to identify their customers. The provision refers to procedures used in the fulfilment of obligations related to the reporting of information concerning a financial account. A reportable arrangement also includes measures that utilise deficiencies in such procedures.

Examples of arrangements reportable on the basis of this hallmark:

3.7 Beneficial owner

An arrangement reported on the basis of the hallmark concerning the beneficial owner includes measures due to which the legal or beneficial owner is not identified or by means of which identification has been made difficult. An arrangement is reportable if it involves a non-transparent ownership chain with the use of persons or structures (section 21):

1. that do not carry on a substantive economic activity supported by adequate staff, equipment, assets and premises;
2. that are incorporated, managed, resident, controlled or established in any country or jurisdiction other than the country or jurisdiction of residence of one or more of the beneficial owners of the assets held by such beneficial owners; and
3. where the beneficial owners of these are made unidentifiable.

Thus the hallmark is applicable only when the beneficial owner or legal owner is concealed by means of an arrangement that simultaneously fulfils all the conditions listed in paragraphs 1–3 and this is known by any party submitting the notification. The reporting obligation does not involve any separate, new obligation to investigate.

3.8 Hallmarks concerning transfer pricing

An arrangement is reportable on the basis of the hallmarks concerning transfer pricing (section 22), if:

1. it involves the use of unilateral transfer pricing provisions specific to a country or jurisdiction instead of generic transfer pricing provisions;
2. it involves the transfer of hard-to-value intangibles between associated persons or rights in intangibles for which, at the time of the transfer:
   1. no reliable comparables exist; and
   2. at the time the transaction was entered into, the projections of future cash flows or income expected to be derived from the transferred intangible, or the assumptions used in valuing the intangible are highly uncertain; or
3. the arrangement involves an intragroup cross-border transfer of functions, risks or assets, and the projected annual earnings before interest and taxes (EBIT), during the three-year period after the transfer, of the transferor or transferors, are less than 50% of the projected annual EBIT of such transferor or transferors if the transfer had not been made.

The fulfilment of hallmarks concerning transfer pricing (section 22) is evaluated independently. These hallmarks do not involve any measurement of the main benefit. An arrangement according to the hallmarks can be a reportable arrangement under the Act, even if transfer pricing adjustment in section 31 of the Act on Assessment Procedure cannot be applied to it.

3.8.1 Specific unilateral transfer pricing provisions

An arrangement is reportable if it involves the use of unilateral transfer pricing provisions specific to a country or jurisdiction instead of generic transfer pricing provisions (section 22, paragraph 1).

According to the government proposal, “specific transfer pricing provisions” refer to “safe harbour rules” that give a taxpayer an opportunity to apply terms agreed beforehand in the pricing of a group’s internal transactions instead of generic transfer pricing rules. Unilateral safe harbour rules of various countries are rules that have been accepted by only one country. “Generic transfer pricing rules” refer to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and rules according to these. On the basis of this hallmark, reportable arrangements are only those that are not in accordance with the OECD Transfer Pricing Guidelines and the arm’s-length principle.

Safe harbour rules are often created to facilitate taxpayers’ administrative obligations related to transfer pricing. On the basis of the rule, a taxpayer can use a simplified model for internal transfer pricing without preparing a benchmark study, for instance. The safe harbour rule can also exempt certain taxpayers or transactions from some or all generic transfer pricing provisions. Pricing according to the safe harbour rule is usually accepted automatically by the tax authority in the country where the provision is issued.

According to the OECD Transfer Pricing Guidelines (paragraph 4.103), safe harbours do not include administrative simplification procedures which do not directly involve determination of arm’s length prices. One example is simplification of the documentation obligation in transfer pricing. Safe harbour rules also do not refer to provisions concerning the advance pricing arrangement (APA) or undercapitalization. Thus, arrangements according to these provisions are not reportable under section 22, paragraph 1.

This hallmark covers only safe harbour rules unilaterally granted by a country, because they can increase the risk of tax planning and an opportunity for multiple instances of tax exemption. The section of law thus does not apply to safe harbour rules agreed between two or more countries. Arrangements that utilise other safe harbour rules than those concerning transfer pricing also are not reportable according to the section of law.

An arrangement is not reportable if the arrangement applies the OECD Transfer Pricing Guidelines and the transfer prices used are, in line with the Guidelines, proven to be at arm’s length even if the pricing used is also classified at the level indicated by the safe harbour rule.

3.8.2 Transfer of hard-to-value intangibles

An arrangement is reportable if it involves the transfer of hard-to-value intangibles or rights in intangibles between associated enterprices (section 22, paragraph 2). However, an arrangement is reportable only if both of the following conditions are fulfilled:

• There are no reliable comparables for intangibles or rights in intangibles at the time of their transfer; and
• At the time the transaction was entered into, the projections of future cash flows or income expected to be derived from the transferred intangible, or the assumptions used in valuing the intangible are highly uncertain.

The concept of ‘hard-to-value intangibles or rights in intangibles’ corresponds, in terms of its content, to the definition of paragraph 6.189 in the OECD Transfer Pricing Guidelines. According to paragraph 6.190 of the OECD Transfer Pricing Guidelines, an intangible can be hard to value, for instance, when the intangible is only partially developed at the time of the transfer, or the intangible is not expected to be exploited commercially until several years following the transaction. Although the concept of ‘hard-to-value intangibles or rights in intangibles’ corresponds, in terms of its content, to the definition of paragraph 6.189 in the OECD Transfer Pricing Guidelines, reporting the arrangement according to section 22, paragraph 2 of the Act still does not necessarily mean that the arm’s length price of intangibles or rights in intangibles is determined according to section D.4. In Chapter VI of the OECD Transfer Pricing Guidelines.

A ‘transfer’ refers to all cross-border assignment of intangible or rights in intangibles, such as trading or licensing. In this section, a ‘transfer’ also refers to assignment without consideration, such as the granting of a free right of use.

Associated persons are defined in section 2, paragraph 8 of the Act on Reportable Arrangements (see section 3.5.1). This definition of ‘association’ differs from the definition of an association according to section 31 of the Act on Assessment Procedure, for example. Thus, reportable arrangements can also be ones that would not be regarded as associated transactions under section 31 of the Act on Assessment Procedure.

An arrangement is not reported if the price of the intangibles transferred can be determined on the basis of reliable comparables. Reliable comparables can be comparable transactions according to the comparable uncontrolled price method (CUP). Comparability is evaluated according to the OECD Transfer Pricing Guidelines. External comparables found with a database search can also serve as reliable comparables if they fulfil the conditions for comparability. In this context, the value of an intangible determined on the basis of other transfer pricing methods does not mean a reliable comparable.

An arrangement is not reported if the value of the intangibles transferred can be determined reliably, on the basis of transfer pricing or value determination methods. Forecasts concerning cash flows and income used in this context or other assumptions used in the assessment cannot be highly uncertain, however. Section D.3. in Chapter VI of the OECD Transfer Pricing Guidelines can be used to help with the interpretation of an assessment of such uncertainty.

3.8.3 Transfer of intragroup functions, risks or assets

A cross-border transfer of intragroup functions, risks or assets is a reportable arrangement (section 22, paragraph 3). However, an arrangement need not be reported to the Tax Administration if the arrangement does not fulfil the “EBIT test” specified in the provision. EBIT projections are used to evaluate whether the projected annual EBIT, during the three-year period after the transfer, of the transferor or transferors, is less than 50% of the projected annual EBIT of such transferor or transferors if the transfer had not been made. 

This hallmark involves the reporting of arrangements that are described in Chapter IX of the OECD Transfer Pricing Guidelines. According to the government proposal, the purpose of the hallmark is to include in the sphere of reporting cross-border business restructuring that would result in the transferring taxpayer losing a significant share of their earning potential.

The Directive, the Act or the government proposal does not specify what the term “intragroup” means with regard to this hallmark. In this context, it is thus possible to use the definition that is in line with section 31, subsection 2 of the Act on Assessment Procedure and is relevant for transfer pricing.

In order to establish the reporting obligation, it is necessary to prepare annual EBIT projections for the three years following the transfer. The earnings before interest and taxes (EBIT) according to the hallmark is in line with the separate company’s income statement, and the same as the operating profit. If a separate lump-sum or running compensation is paid to the transferor for a transfer referred to in paragraph 3, the compensation is eliminated from the EBIT projections calculated for the three years following the transfer.

In this section, ‘year’ refers to the taxpayer’s tax year. Therefore, if a transfer is made on 30 September 2020 and the taxpayer’s tax year is the calendar year, the three following years referred to in this section are tax years 2021–2023.

Only arrangements that are material with regard to transfer pricing are reportable. Tax-neutral corporate restructuring, such as cross-border mergers, are not reportable on the basis of this hallmark. Sales of shares in subsidiaries also need not be reported on the basis of this hallmark.

4 Service provider’s obligation to inform

4.1 Service provider

A ‘service provider’ is a person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable arrangement. A service provider is also a person that knows or could be reasonably expected to know that they have undertaken to provide, directly or by means of other persons, aid, assistance or advice with any of the above (provider of assistant service) (section 2, subsection 1, paragraph 4). A service provider can be a natural person, legal person, an association of persons, or any legal arrangement. However, a natural person is a service provider only if s/he acts for the purpose of earning income in relation to the arrangement.

The party with an obligation to inform is always the company providing the services. The company’s employees, who manage the assignment in practice, are not personally in the position of a service provider.

Only Finnish service providers are subject to an obligation to submit notifications on reportable arrangements in Finland (section 17e of the Act on Assessment Procedure). A service provider is Finnish when at least one of the following conditions is fulfilled (section 1, subsection 1, paragraphs 4–5):

• the service provider is resident for tax purposes in Finland
• the service provider provides services related to a reportable arrangement from a permanent establishment located in Finland
• the service provider is incorporated in Finland
• the service provider is governed by the laws of Finland
• the service provider is registered with a professional organisation or association related to legal, taxation or consultancy services in Finland.

4.1.1 Designer, marketer, organiser

A service provider is a person who is responsible for designing a reportable arrangement (section 2, subsection 1, paragraph 4). A person is deemed to be responsible for designing an arrangement at least when the person includes in the arrangement a feature that fulfils any of the conditions for the hallmark laid down in Chapter 3 of the Act on Reportable Arrangements.

A service provider is also a person who markets an arrangement (section 2, subsection 1, paragraph 4). Marketing means an activity where a person proposes, recommends or encourages other people utilise an arrangement that fulfils the conditions for at least one hallmark. In practice, a service provider can market a reportable arrangement designed either by themselves or by another service provider (Government proposal HE 69/2019, rationale for section 2).

Marketing of a reportable arrangement also includes situations in which the marketed arrangement has not originally been designed such that it would fulfil the conditions for a hallmark. For instance, an investment advisor is regarded as a service provider in a situation where they market for their customer an investment product in order to avoid obligations concerning the reporting of financial account information according to sections 17a–17d of the Act on Assessment Procedure, even if the issuer of the product did not design, market or intend the product to be used for evading said obligations. (Government proposal HE 69/2019, rationale for section 2)

A person who, in one way or another, actively assists with the implementation of a reportable arrangement or with making it available is also a service provider. Such assistance can occur so that the service provider makes a reportable arrangement available for implementation, is responsible for organising a reportable arrangement, or manages its implementation. (Government proposal HE 69/2019, rationale for section 2)

4.1.2 Provider of assistant service

In this context, “assistant service” refers to any aid, assistance or advice with the design, marketing or organisation of a reportable arrangement, with the management of its implementation and with making it available. A service provider is also a person who provides assistant services either directly or by means of other persons. A further condition is that the provider of assistant service knows or could be reasonably expected to know that s/he has undertaken to provide services related to the reportable arrangement (section 2, subsection 1, paragraph 4).

The reporting obligation of a provider of assistant service is always based on awareness of the reportability of the arrangement. A provider of assistant service is subject to the reporting obligation only if the provider can, on the basis of the facts and circumstances s/he knows about the arrangement, evaluate whether the arrangement is reportable. In practice, this requires that the provider of assistant service is aware of the facts of the arrangement and the legal treatment of the arrangement which enables the provider to identify that the case constitutes a cross-border arrangement and that the arrangement fulfils any of the hallmarks laid down in the Act. An evaluation of the awareness takes into account all information known by the service provider and other information related to the arrangement available to the service provider. In this context, the service provider is not subject to any specific obligations of investigation or duty of care. An evaluation is made solely on the basis of information related to the implementation of the assignment. However, a reporting obligation cannot be avoided by refusing to accept information typically requested for an assignment. A provider of assistant service is deemed to be aware of the reportability of an arrangement whenever the service provider has received a unique reference number on said arrangement, issued by the tax authority, from another service provider of the same arrangement (See section 4.2).

Providers of assistant services can be, for instance, legal counsels, auditors, financial advisors and consultants who, as part of their business, provide services related to reportable arrangements. (Government proposal HE 69/2019, rationale for section 2). A person that provides assistant services can, for example, work closely with the designer or marketer of the arrangement, or assist the relevant taxpayer with the implementation of the reportable arrangement, knowing that the case constitutes a reportable arrangement. Aid related to a reportable arrangement includes, for instance, a situation where a bank provides its services related to the arrangement by opening a foreign account, if the bank is aware of the fact that opening the account contributes to the organisation of the reportable arrangement.

Administrative or ‘compliance’ services

A person that provides administrative or “compliance” services can be a provider of assistant service subject to a reporting obligation when the person could be expected to know that the service is related to a reportable arrangement. This is the case when an arrangement and the provision of services related to it are familiar for the person, on the basis of their expertise and experience.

However, the provision of administrative or compliance services can generate an obligation to inform only in the case that the provision of these services is specifically related to the design or implementation phase of the reportable arrangement. For instance, preparing an application for a preliminary ruling concerning said arrangement in the design or implementation phase of the reportable arrangement is an assistant service that can generate an obligation to inform for the service provider.

In principle, services provided after the implementation of an arrangement do not generate an obligation to inform.

Audit

As a provider of assistant service, an auditor can be subject to an obligation to inform, in practice, mostly when they provide assistance or advice specifically concerning an arrangement in the design or implementation phase of the arrangement. In principle, providing a statement under the Auditing Act is not regarded as provision of assistant service. Circumstances learned by an auditor in the course of normal auditing work during an accounting period do not make the auditor a provider of assistant service with a reporting obligation, unless the auditor specifically due to them provides aforementioned assistance or advice related to the design or implementation phase of the reportable arrangement. Advice provided by auditors, accountants or other financial administration professionals concerning the processing of accounts or financial statements also do not generate a reporting obligation.

Financial institutions

A financial institution may be a provider of assistant service with a reporting obligation when it actively participates in the design, marketing or implementation of the reportable arrangement and is adequately aware of the nature of the arrangement as a reportable arrangement. On the contrary, a financial institution that only acts in the role of a payment intermediary is not a provider of assistant service with an obligation to inform. As a rule, provision of ordinary products of financial institutions does not make a financial institution or its employee a provider of assistant service with a reporting obligation.

4.2 Service provider's obligations

A service provider must report information that is within its knowledge, possession or control on a reportable arrangement to the Tax Administration (section 17e of the Act on Assessment Procedure). A service provider is not subject to a separately stipulated obligation to investigate related to the notification of an arrangement. The countries of residence or location of the relevant taxpayers in an arrangement and other participants in the arrangement are irrelevant with regard to the service provider’s reporting obligation.

The Tax Administration issues a unique reference number on an arrangement to the service provider that submits the first notification of the arrangement. Subsequent notifications related to the same arrangement must be submitted with this reference number. For this reason, the service provider must indicate the reference number it has received from the Tax Administration to other service providers or relevant taxpayers in the same arrangement with a reporting obligation within its knowledge.

If a service provider has been exempted from the reporting obligation due to professional privilege (see section 4.3), either another service provider related to the arrangement or the relevant taxpayer must report the details on the arrangement to the extent these have not been reported by the exempted service provider. In such a case, the exempted service provider must notify any other service provider related to the arrangement, or the relevant taxpayer, of the reporting obligation, and pass on any reference number received from the Tax Administration to these parties subject to the reporting obligation. A service provider must submit a notification of its reporting obligations concerning an arrangement and also pass on the reference number issued by the Tax Administration to service providers and relevant taxpayers in other Member States within its knowledge that are related to the reportable arrangement.

A service provider is not obliged to submit a notification of the details on a reportable arrangement to the extent it has already reported these in another EU Member State (see section 4.5) or when another service provider has already reported the details (see section 4.4).

4.3 Exemption of a service provider from the obligation to inform

4.3.1 Service providers exempted from the obligation to inform

The following Finnish service providers have been partially exempted from the reporting obligation (section 6):

1. an advocate according to the Advocates Act (496/1958); 
2. a licenced legal counsel according to the Licenced Legal Counsel Act (715/2011); and 
3. a public legal aide according to the Act on State Legal Aid and Guardianship Districts (477/2016).

Service providers other than those mentioned above, such as legal counsels, tax specialists and other tax advisors, are not exempted from the reporting obligation concerning reportable arrangements.

This exemption is based on national legal privilege provisions. A service provider according to the section is exempted from the reporting obligation concerning information referred to in Chapter 17, section 13, subsection 1 or 3 of the Code of Judicial Procedure (4/1734) or in section 5a of the Advocates Act.

The exemption only pertains to information implied in the provisions on the prohibition to testify and the obligation of confidentiality. According to the provision on the prohibition to testify, an attorney or trial counsel or interpreter may not, without permission, testify regarding what s/he has learned in carrying out a function related to legal proceedings, in providing legal counsel regarding the legal status of the client in a criminal investigation or in other procedure in advance of legal proceedings, or in providing legal counsel regarding the initiation or the avoidance of legal proceedings (Code of Judicial Procedure, Chapter 17, section 13, subsection 1). Even a service provider included in the sphere of such exemption must provide details according to section 4 of the Act on Reportable Arrangements, to the extent that these are not included in the sphere of provisions on the prohibition to testify and the obligation of confidentiality.

In practice, a service provider exempted from the obligation to inform does not become subject to the obligation to inform in situations related to the prohibition to testify during the aforementioned legal proceedings (Code of Judicial Procedure, Chapter 17, section 13, subsection 1), because details on reportable arrangements must be reported to the Tax Administration earlier, at the latest once the first phase of the arrangement has been implemented. If the case involves a reportable arrangement, the reporting threshold has been exceeded in the design phase of the arrangement or, at the latest, once the first phase of the arrangement has been implemented. Reporting an arrangement is thus no longer topical during the legal proceedings.

The confidentiality of the relationship between an advocate and his/her client in Finland is laid down in section 5c of the Advocates Act. According to the section, an advocate or his assistant shall not, without due permission, disclose the secrets of an individual or family or business or professional secrets which have come to his knowledge in the course of his professional activity. Chapter 17, section 13, subsection 3 of the Code of Judicial Procedure corresponds to section 5c of the Advocates Act, with the distinction that in the provision in the Code of Judicial Procedure, the prohibition to testify is an obligation on advocates as well as licensed legal counsels and public legal aides.

The duties of a service provider exempted from the obligation to inform are often based on an assignment received from a client or on another agreement between the service provider and the client. If, while managing such a duty, a service provider receives information included in the sphere of the provision on the prohibition to testify in Chapter 17, section 13, subsection 3 of the Code of Judicial Procedure or the confidentiality provision in section 5c of the Advocates Act, such as personal identification details, these need not be reported to the Tax Administration.

4.3.2 Details that must be reported regardless of an exemption

The fact that a service provider has been exempted from the obligation to report certain details does not automatically exempt them from the entire reporting obligation with regard to reportable arrangements. Details other than those listed in section 4.3.1 must always be reported. A service provider exempted from the obligation to inform must notify the Tax Administration at least the following details according to section 4 of the Act on Reportable Arrangements in the Field of Taxation of a reportable arrangement within its knowledge

1. identification details on the service provider;
2. details on the hallmarks that make the arrangement reportable;
3. the implementation date of the first phase of the arrangement;
4. details on national provisions on which the reportable arrangement is based;
5. the value of the reportable arrangement;
6. information about countries that the reportable arrangement probably concerns.

If an advocate estimates that, in some specific situation, disclosure of any detail mentioned above would breach the confidentiality of advocacy, they must contact the Tax Administration and provide a clarification of the situation before the end of the deadline for the notification.

A service provider exempted from the obligation to inform can usually, notwithstanding provisions on the prohibition to testify and confidentiality, also report the following details within their knowledge or possession to the Tax Administration:

• an anonymized summary of the contents of the reportable arrangement and an anonymised general description of the material transactions or arrangements;
• information about the EU country where the relevant taxpayer is resident for tax purposes.

In addition, a service provider exempted from the obligation to inform must always notify another service provider or the relevant taxpayer in the same arrangement of their reporting obligation, and communicate the reference number concerning the arrangement received from the Tax Administration. A service provider exempted from the obligation to inform must also notify without undue delay the relevant taxpayer of the details the service provider has been unable to report due to the obligation of confidentiality, so the taxpayer can fulfil their reporting obligation within the prescribed period.

4.3.3 Provider of assistant service exempted from the obligation to inform

A service provider exempted from the obligation to inform can also participate in the design of a reportable arrangement in a limited role, such as by providing legal aid, assistance or advice for it, without personally designing, marketing or organising the arrangement. In such a case, it is possible that this service provider only knows details of the reportable arrangement that are included in the sphere of a provision on confidentiality or the prohibition to testify. Such cases can be, for example, situations in which an advocate prepares a testament, bill of sale or another document entirely on the basis of information received from the client. In such a situation, the only duty of a provider of assistant service exempted from the obligation to inform is to notify another service provider or the relevant taxpayer of the reporting obligation concerning them.

4.3.4 Distribution of the reporting obligation between a taxpayer and a service provider

A relevant taxpayer can give their consent to a service provider exempted from the obligation to inform that the service provider also reports details on the arrangement that are included in the sphere of provisions on confidentiality and the prohibition to testify. If the service provider then reports all the details required on the arrangement regardless of the provisions on confidentiality and the prohibition to testify, the relevant taxpayer need not report details on the arrangement to the Tax Administration in any respect. If the relevant taxpayer is unwilling to give the service provider consent to report details included in the sphere of provisions on confidentiality and the prohibition to testify, the relevant taxpayer must report details on the arrangement to the Tax Administration to the extent the exempted service provider has not reported them, using the reference number received from the service provider in their notification. Alternatively, if the relevant taxpayer does not use the reference number received from the service provider in their notification, the relevant taxpayer must report all the information within their knowledge, possession or control on the reportable arrangement, regardless of what the service provider has reported to the Tax Administration on the arrangement.

4.3.5 Design without an assignment

A service provider can design a tax planning arrangement without an assignment from a client or another agreement between the service provider and the client, and market it to the public or to a targeted group of people. Such a marketable arrangement, which fulfils the conditions for a reportable arrangement, does not contain details included in the sphere of provisions on the prohibition to testify or confidentiality. For such an arrangement, an advocate acting in the role of a service provider must report all details in accordance with section 4 of the Act on Reportable Arrangements in the Field of Taxation, as in other situations not included within the sphere of the obligation of confidentiality.

4.4 Service provider’s obligation to inform when one reportable arrangement includes several service providers

If a reportable arrangement includes several service providers, all Finnish service providers are subject to a reporting obligation concerning the arrangement at hand (section 8). However, a Finnish service provider need not report details that another service provider has already submitted to the Tax Administration or to a competent authority in another Member State of the European Union.

The right not to submit information only applies to details on a reportable arrangement that another service provider has already verifiably reported. This requires that the service provider who has passed on the reference number has provided, alongside the arrangement’s reference number, such adequate details of the information content of the notification to the service provider who has received the reference number that the service provider can know that this information within the service provider’s possession has, in fact, been reported. For the relevant taxpayers, for instance, this requires a list of names of the relevant taxpayers reported. If the first service provider is unable or unwilling to provide another service provider with details specified at an adequate level, the other service provider must report all the information within their possession. This clarification must be submitted to the Tax Administration upon request. If the other service provider has reported only some of the details of the arrangement to the Tax Administration or to a competent authority in another Member State, the service provider must report the details concerning the arrangement that have not yet been reported. Upon the reporting of information, the reference number received from the other service provider must be used.

If the service provider is unable to verifiably prove that the other service provider has already reported details concerning the same reportable arrangement, the service provider must report all the details of the arrangement required by law (see Chapter 6).

4.5 Service provider’s reporting obligation in several EU Member States

If a service provider has a connection with several Member States, the service provider is subject to a reporting obligation to all these States. A Finnish service provider is not obliged to provide information about a reportable arrangement to the Tax Administration if the Finnish service provider is obliged to report and has verifiably reported the information to a competent authority in another Member State of the European Union and this Member State is placed in the same position as or ahead of Finland in the following list:

1. Member State where the service provider is resident for tax purposes
2. Member State where the service provider has a permanent establishment through which the services with respect to the arrangement are provided
3. Member State where the service provider is incorporated or whose laws are applied to the service provider
4. Member State where the service provider is registered with a professional association related to legal, taxation or consultancy services.

A service provider must therefore report a reportable arrangement in the Member State which comes highest in the order of precedence. A service provider has the right not to report details of a reportable arrangement in Finland only to the extent the details have verifiably been reported in another EU Member State. As proof of this, a service provider must, upon request, notify the Tax Administration of the reference number received from a competent authority in another Member State. If a Finnish service provider has reported only some of the details of an arrangement to another Member State, the unreported details must be reported to the Tax Administration. In such a case, the notification must include the reference number received from the competent authority in the other Member State. (Government proposal HE 69/2019, rationale for section 7)

5 Taxpayer’s reporting obligation

5.1 Situations in with a taxpayer is subject to a reporting obligation

A relevant Finnish taxpayer must report all the information within his/her knowledge, possession or control on a reportable arrangement to the Tax Administration, if none of the service providers is obliged to report this information (section 14f of the Act on Assessment Procedure). A taxpayer must submit a notification concerning an arrangement in three different situations:

1. A service provider exempted from the obligation to inform on the basis of professional privilege (see section 4.3) notifies the taxpayer that the taxpayer must report said arrangement.
2. The taxpayer only uses a service provider operating outside of EU Member States.
3. Experts employed by the taxpayer design the arrangement without assistance from a service provider subject to a reporting obligation.

A natural person can usually be subject to a reporting obligation only in situations 1 and 2.

In all the situations mentioned above, the generation of a reporting obligation requires that the case constitutes a reportable cross-border arrangement (see Chapter 2) and the taxpayer is involved in the arrangement in the role of a relevant taxpayer.

5.2 Relevant taxpayer

A relevant taxpayer is any person (section 2, subsection 1, paragraph 6),

• to whom a reportable arrangement is made available for implementation, or
• who is ready to implement a reportable arrangement or
• has implemented the first step of such an arrangement.

In this context, ‘person’ refers to a natural person, a legal person and any legal arrangement. A relevant taxpayer can be any person whoever or whatever, regardless of the country of residence. Of parties to an arrangement, a relevant taxpayer is, for instance, a person upon whose assignment a service provider has designed the arrangement.

A ‘relevant Finnish taxpayer’ refers to all persons generally liable to tax in Finland and other persons with a reporting obligation referred to in the Act on Reportable Arrangements (section 2, subsection 1, paragraph 7).

• A natural person is generally liable to tax in Finland if he or she lives in Finland. An individual lives in Finland if s/he has his/her permanent residence and home here, or if s/he stays in Finland for a continuous period of more than six months. A Finnish corporate entity, joint benefit administration and an estate of a deceased individual are generally liable to tax in Finland, if they are registered in Finland or have been established under the laws of Finland. Please, see Tax Administration’s instruction Tax residency and nonresidency.
• A foreign corporate entity that has a permanent establishment in Finland and is not a resident for tax purposes in another EU Member State can be a relevant Finnish taxpayer, if the permanent establishment utilises a reportable arrangement. A ‘permanent establishment’ refers to a place of business in which a company partly or fully carries out its operations. A permanent establishment in Finland is, for example, a company’s place of management, office, factory, or dependent agent. Please, see Tax Administration’s instruction Income taxation of nonresident foreign corporate entities.
• A foreign corporate entity can be a Finnish relevant taxpayer when it receives income from Finland, is not a resident for tax purposes and has no permanent establishment in another EU Member State, or when it operates business in Finland and is not a tax resident for tax purposes and has no permanent establishment in another European Union Member State and receives no income from another European Union Member State (section 2, subsection 1, paragraph 7).

A legal person, such as a company, can be in the same arrangement subject to a reporting obligation both as a relevant taxpayer and as a service provider, if it offers a reportable arrangement it has designed and implemented by itself for implementation by another taxpayer at a later date. In such a case, it must comply with the obligations concerning service providers (see section 4.2).

5.3 Taxpayer’s reporting obligation in several EU Member States

A relevant taxpayer becomes subject to a reporting obligation to all Member States with which the taxpayer has a connection referred to in section 2, paragraph 7 of the Act on Reportable Arrangements (Government proposal HE 69/2019, rationale for section 10). A relevant Finnish taxpayer has the right not to report details of a reportable arrangement to the Tax Administration, if the taxpayer has a reporting obligation in another EU Member State with which the taxpayer has a stronger connection than with Finland, and the taxpayer has verifiably reported the information to this other Member State (section 10).

A relevant taxpayer should report an arrangement in the EU Member State that is placed highest in the following list (section 10): 

1. the relevant taxpayer’s country of tax residence
2. the country where the relevant taxpayer has a permanent establishment benefiting from the arrangement
3. the country where the relevant taxpayer receives income or generates profits, though the relevant taxpayer is not resident for tax purposes and has no permanent establishment in any Member State
4. the country where the relevant taxpayer carries on an activity, although the relevant taxpayer is not resident for tax purposes and has no permanent establishment in any Member State.  

In situations according to this provision, a relevant Finnish taxpayer can choose not to report to the Tax Administration the details of a reportable arrangement that the taxpayer has already reported to a competent authority in an EU Member State that comes ahead of Finland in the aforementioned list.

The purpose of the provision on reporting in several countries is to prevent the reporting of the same information multiple times. The right not to file reportable information requires that the relevant taxpayer is able to verifiably prove that they have reported the same information in another Member State. This can be proved by providing the Tax Administration with the reference number issued by the other Member State’s competent authority for said arrangement. If the relevant taxpayer has reported only some of the details of an arrangement in another State, the missing details must be reported in Finland. In such a case, the notification must include the reference number received from the competent authority in the other Member State.

5.4 Taxpayer’s reporting obligation when an arrangement includes several relevant taxpayers

If one arrangement includes several relevant taxpayers, they all are independently subject to a reporting obligation. However, a relevant Finnish taxpayer need not report to the Tax Administration details that another relevant taxpayer has verifiably reported to the Tax Administration or to a tax authority in another EU Member State (section 11). A further condition is that the relevant taxpayer who reported the information is higher than the relevant Finnish taxpayer in the following list:

1. Relevant taxpayer who agreed on the reportable arrangement with the service provider
2. Relevant taxpayer who manages the implementation of the arrangement

As proof of such notification, the relevant taxpayer must, upon request, provide the Tax Administration with the reference number issued by the authority for said arrangement.

6 Reportable information

6.1 General

The service provider and the relevant taxpayer must submit details of any reportable arrangement according to section 4 of the Act on Reportable Arrangements. The party with a reporting obligation must provide the Tax Administration only with information within their knowledge, possession or control on the reportable arrangement. The reporting obligation does not involve any separate, new obligation to investigate.

6.2 Reportable personal details

A notification of a reportable arrangement must indicate details related to the identification of the service providers, the relevant taxpayers, and the persons associated with the relevant taxpayers (section 4, subsection 1, paragraph 1). In this context, ‘person’ refers to both a natural person and a legal person. Details related to such identification are name, a natural person’s date and place of birth, address, the person’s residence for tax purposes, and Taxpayer Identification Number (business ID, personal identity code or foreign TIN). Identification details must also be reported on all the persons likely to be affected by the reportable arrangement and who are resident for tax purposes in an EU Member State.

Service provider

The design and implementation of a reportable arrangement can involve several service providers. Each service provider must report their own identification details and also details related to identification on other service provider involved in the arrangement within their knowledge.

Relevant taxpayer

A reportable arrangement can include one or several relevant taxpayers (see section 5.2). A reportable arrangement can be reported without details of the relevant taxpayer when the case involves the first notification of a marketable arrangement.

6.3 Details of a reportable arrangement

A notification of a reportable arrangement must provide a verbal description of the facts and relevant business transactions of the reportable arrangement. It must also indicate the name by which the arrangement is commonly known and specify the hallmarks on the basis of which the arrangement is reportable (section 4, subsection 1, paragraphs 2 and 3).

The notification must describe the provisions in national tax laws that are relevant for obtaining the tax advantage (section 4, subsection 1, paragraph 5). In this context, “national provisions” refer both to national provisions of countries related to the arrangement and to applicable provisions in tax treaties of the resident countries of the persons participating in the arrangement. Thus the reporting obligation in these provisions is not exclusively limited to provisions in Finnish national legislation; instead, even other countries’ national provisions relevant for the arrangement must be reported. The description must indicate the provision on which the hallmark triggering the reporting obligation is based.

The value of the reportable arrangement must be reported (section 4, subsection 1, paragraph 6). “Value” refers to the combined total value, in euros, of the transactions related to the arrangement or other functions related to the arrangement, not the amount of the tax advantage. The value of an arrangement can thus consist of one or several transactions included in the arrangement. The value can be, e.g. a sales price, the amount of capital invested, or the amount of a deduction made.

The notification must also include the implementation date or the known future date of implementation of the arrangement (section 4, subsection 1, paragraph 4). If the reportable arrangement has a reference number issued by an authority due to a prior notification, this must be indicated. For an arrangement, it is also necessary to report the EU Member States affected by it (section 4, subsection 1, paragraph 7).

Further details on reporting are available in the Tax Administration instruction Notifying of a reportable arrangement, instructions for filling in the form.

6.4 Reporting an arrangement that contains inside information

A notification of a reportable arrangement should be given, at the latest, upon the beginning of its implementation. For this reason, a notification can in some cases contain inside information referred to in the Market Abuse Regulation (EU 596/2014). In such a situation, the party with the reporting obligation must notify the Tax Administration that the notification contains inside information (see data record specification DAC6 - Notification of a reportable arrangement (VSDAC6DC), or the instruction Notifying of a reportable arrangement, instructions for filling in the form). The Tax Administration ensures that the procedure followed in the processing of notifications containing inside information and in the reporting of information to other EU Member States is in accordance with the Regulation and other provisions concerning the matter.

7 Deadlines for notifications

7.1 Service provider’s and relevant taxpayer’s notification

Both a service provider and a relevant taxpayer with a reporting obligation must submit a notification on a reportable arrangement to the Tax Administration within 30 days of the date when the first of the following thresholds is exceeded (section 5, section 9):

• the reportable arrangement has been made available for implementation,
• the reportable arrangement is ready for implementation, or
• the first step of the reportable arrangement has been implemented.

The concepts ‘made available for implementation’ and  ‘ready for implementation’ are very similar in terms of their contents (Government proposal HE 69/2019, rationale for section 5). An arrangement has been made available for implementation, for instance, when the service provider has completed the design of an arrangement according to the assignment. In such a case, with regard to the service provider’s reporting obligation, it is irrelevant whether the client implements the arrangement. An arrangement has been made available also when marketing of the arrangement to the public or to a targeted group of people has been started. With regard to marketable arrangements, a reporting obligation is usually generated before the reportable arrangement has any party utilising it. An arrangement is ready for implementation, for example, when a company has designed for itself a reportable arrangement that does not involve marketing to customers or other similar measures.

According to the government proposal, the implementation of the first step of a reportable arrangement means any measure or transaction which shows that practical implementation of the arrangement has begun. The first step has been implemented once the first concrete measure has been taken to implement the arrangement.

7.2 Notification by a provider of assistant service

A notification by a provider of assistant service must be submitted within 30 days of the date when the aid, assistance or advice related to a reportable arrangement has been provided (section 5, subsection 2). In some situations, this can mean that a notification by a provider of assistant service must be submitted before the deadline for the notification by the actual service provider ends. In practice, a provider of assistant service must, however, possess adequate knowledge of an arrangement as a whole in order to be able to evaluate the exceeding of the reporting threshold (see section 4.1.2).

7.3 Updating of a notification concerning a marketable arrangement

A service provider who has designed a marketable arrangement and submitted the first notification concerning it, or who markets a marketable arrangement designed by another service provider, is obliged to report to the Tax Administration, at three-month intervals, certain details of the arrangement that have become available after the submission of the previous notification (section 5, subsection 4). The three-month deadline is calculated from the submission of the previous notification concerning the same arrangement. The purpose of this provision is to combine a reported marketable arrangement with the taxpayers utilising it.

Details updated at three-month intervals include identification details of service providers, relevant taxpayers and persons associated with these, the implementation date of the first step of the arrangement, identification of the European Union Member States likely affected by the arrangement, and identification details of other persons whose residence for tax purposes is in a European Union Member State and who are likely affected by the reportable arrangement, and identification of such persons’ countries of tax residence.

The updating obligation does not apply to bespoke arrangements.

7.4 Transitional provision concerning deadlines

According to the transitional provision in section 24 of the Act on Reportable Ar-rangements, reportable arrangements whose first step is implemented during the period between the adoption of the Directive and the beginning of its application, from 25 June 2018 to 30 June 2020, must be reported to the Tax Administration no later than 31 August 2020. Parties with a reporting obligation only need to report information within their knowledge, possession or control of arrangement that fall within the scope of application of the transitional provision. The Act does not in-clude a separate, new obligation to investigate directed at prior years.

7.5 Obtaining a postponement of deadlines

According to the Act, both a relevant taxpayer with a reporting obligation and a service provider with an obligation to inform must submit a notification within a 30-day deadline. The Act on Reportable Arrangements does not include provisions on granting of postponement for the submission of a notification

8 Negligence of the reporting obligation

A negligence penalty may be imposed for negligence of obligations under the Act on Reportable Arrangements (section 22a of the Act on Assessment Procedure). The amount of the negligence fee varies according to the severity of the negligence and is 15,000 euros at most. The same provision is applied to any negligence of obligations by both a service provider and a relevant taxpayer.

A negligence penalty is always imposed on the person whose negligence of the reporting obligation is involved in the case. Thus negligence of the reporting obligation by a service provider, for instance, does not cause consequences for a relevant taxpayer.

According to the government proposal, the penalty imposed for negligence of the reporting obligation is, by its nature, an administrative penalty fee. Therefore, penalties imposed for negligence do not involve the application of a negligence penalty to obligations that could be subject to a ‘ne bis in idem’ prohibition.

Parties with a reporting obligation can appeal a decision made by the Tax Administration concerning a negligence penalty to the Assessment Adjustment Board. Any service provider or taxpayer subject to a reporting obligation must submit a claim for adjustment within 60 days of receiving service of the Tax Administration's decision.

9 DAC6 exchange of information

DAC6 exchange of information is based on the ‘Administrative Assistance Directive’ (77/799/EEC), as last amended by Council Directive (EU) 2018/822. In Finland, provisions on exchange of information are laid down in the Act on the national implementation of provisions in the field of taxation in the Council Directive on administrative cooperation in the field of taxation and on repealing Directive 77/799/EEC.

The Tax Administration must transmit notifications submitted on the basis of the Act on Reportable Arrangements, by means of automatic exchange of information, to the central register maintained by the European Commission, on a quarterly basis. The central register further transmits the information to the tax administration in the Member State affected by the notification submitted. No information is transmitted to countries outside the European Union. Finland thus also receives information concerning Finland and Finnish taxpayers reported in other Member States.