FIN Courts Income Tax on Share Sales


On Sep. 10, FIN Courts issued decision on capital gains tax on shares.


  • FIN Courts issued decision on taxation of capital gains from trust's sale of shares.
  • Trust Tax and Share Ownership Transfer
  • Ms A and her husband planned to set up a trust under Guernsey law.
  • The intention was to transfer shares in B Oy's owned by issuers A and spouse to the trust by means of a document called settlement, meaning issuers ceased ownership.
  • The trust was established to organize the long-term management of family assets.
  • The beneficiaries of the trust were the descendants of the settlers, i.e. their children, grandchildren and their descendants, and the trustee would be registered in Guernsey.
  • and supervised and approved by GUE GFSC and authorized to act as a trustee.
  • Under Guernsey law, the trust was not a separate legal entity with no legal capacity.
  • As per this law, the assets transferred to the trust became the property of the trustee.
  • The trustee had authority to decide how the assets and the proceeds were used, where they were invested and when they were transferred to the beneficiaries.
  • The trust was irrevocable and the settlers could not claim back the property transferred to the trust, and the trust was supposed to be valid forever.
  • The issue in the case was whether the transfer of B Oy's shares to a trust constitutes a transfer taxed under Income Tax Act provisions related to capital gains and losses.
  • Legal Considerations in Case
  • FIN Courts Supreme Administrative Court, considered permanence of the trust and the right of ownership and decision-making power of the trust, among other things.
  • The Supreme Administrative Court held that the trust corresponded to a set of assets reserved for a special purpose as per definition of section 3(7) of the Income Tax Act.
  • Thus, the transfer of ownership of B Oy's shares from A to the trust was not to be regarded for tax purposes as a donation to the beneficiary of the trust, A's children.
  • Instead, it would be regarded as a legal transaction between A and the trust.
  • Since the transfer of assets to the trust did not take the form of a gift, the transfer of ownership of the shares from A to the trust is interpreted as a legal transaction.
  • It fell within the scope of the Income Tax Act, which was essentially equivalent to the investment of assets, although share ownership transfer was not entirely gratuitous.
  • On the basis of these factors, the transfer of ownership of B Oy's shares to a trust had to be regarded as a transfer as defined under section 45(1) of the Income Tax Act.
  • Outcome and Appeal Upheld
  • The shares were valued at their fair value considering the facts, so preliminary ruling for tax years 2021 and 2022 upheld, with 4-1 vote, dissenting opinion of rapporteur.
  • Rapporteur stated that they would grant leave to appeal and dismiss the appeal, but they will not change the outcome of the Administrative Court's decision.
  • Administrative Court decision is annulled and Tax Administration's preliminary ruling enters into force, following legal considerations and facts of the trust's case.

Regulators FIN Courts
Entity Types Corp; Fiduciary
Reference Dec KHO:2024:100, 9/10/2024
Functions Accounting; Compliance; Fraud; Legal; Tax; Treasury
Countries Finland; Guernsey; Cross-Border
Category National Regulator
State
Products Corporate
Regions EMEA
Rule Type Enforcement
Rule Date 9/10/2024
Effective Date 9/10/2024
Rule Id 225560
Linked to N/A
Reg. Last Update 9/10/2024
Report Section AML & Enforcement

Last substantive update on 09/12/2024