FINLAND Law and Practice Contributed by: Timo Lehtimäki, Niklas Thibblin, Essi Hietaoja and Oona Honkamaa, Waselius
4.3 Tax Concerns for Foreign Lenders In typical private credit/non-bank lending transac - tions, foreign lenders do not generally face any par - ticular Finnish tax concerns when providing loans to Finnish borrowers, notably due to Finnish-sourced interest payments being largely exempt from Finnish withholding tax and the non-applicability of Finnish transfer tax. Notwithstanding the above, it is still customary to include standard tax gross-up clauses in loan agree - ments, for example. In Finland, a common market-practice security pack - age in private equity sponsor-backed deals consists of pledges over shares, bank accounts and intra- group receivables, as well as floating charges. Shares Security over shares of a private limited liability com - pany (which are typically in non-dematerialised form) is created by the parties entering into a share pledge agreement. If share certificates have been issued by the target company, the pledge is perfected by the pledgor delivering the share certificates to the pos - session of the pledgee, endorsed in blank. If no share certificates have been issued, the pledge is perfected simply by notifying the target company of the pledge and instructing it to register the pledge in its share - holder register. Assuming non-dematerialised form, there are no reg - istration fees, stamp duties or other costs involved in a pledge of shares (and in the case of dematerialised shares, only minor registration fees apply). Bank Accounts and Receivables A bank account pledge is created by entering into a security agreement and is perfected by a notice to the account bank, including instructions to block or remove the pledgor’s rights to withdraw or other - wise dispose of the funds held in the pledged bank account. The same principles apply to receivables. Accordingly, a pledge over receivables (whether 5. Guarantees and Security 5.1 Assets and Forms of Security
• in certain circumstances, the loan is transferred in connection with a share transaction. In addition, if a Finnish tax resident borrower has placed Finnish shares or real estate located in Fin - land as collateral for the loan, and where the collateral would be enforced due to a default, it is possible that a non-Finnish tax resident lender would have to pay transfer tax on the shares or real estate received due to the enforcement of the collateral (with Finnish real estate being subject to transfer taxation at a rate of 3%). Thin Capitalisation and Interest Deductibility Limitation Rules While Finland does not have any thin capitalisation rules per se, the general interest deductibility limitation rules may effectively limit the deductibility of interest on loans if certain thresholds are exceeded. This could potentially restrict the debt servicing capability of a Finnish borrower. VAT Certain goods and services are excluded from VAT, such as financial and insurance services. The issu - ance and transfer of loans generally qualify for this exemption. However, servicing and debt collection may be subject to Finnish VAT at the standard rate of 25.5%. That said, services that are not deemed to be supplied in Finland for VAT purposes are not subject to Finnish VAT. Tax-Reporting Obligations Non-Finnish lenders that provide loans to Finnish bor - rowers, and which do not operate in Finland through a branch or permanent establishment, are, at the outset, not subject to Finnish domestic tax-reporting rules or obligations. Foreign lenders may, nonethe - less, be required to provide certain information to the Finnish tax authorities upon request (eg, for tax audit purposes). The EU’s Anti-Hybrid Rules While rarely applicable, attention should be drawn to the EU’s anti-hybrid rules when debt investments are carried out for Finnish tax-resident borrowers.
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