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.
