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Holding company interpreted as means of tax avoidance

  • Finland
  • Tax planning and consultancy


A partner in a company may either directly or through another limited liability company own shares in the company in which they work. A holding company arrangement may have been used to gain profit in, for example, the taxation of dividends and the financing of share acquisitions. In a recent decision of the Supreme Administrative Court, an arrangement involving a holding company was considered a means of tax avoidance.

Decision of the Finnish Supreme Administrative Court

The decision KHO 2014:66, published in the Court Yearbook, involved an arrangement in which a company jointly owned by the executives of a Plc had purchased shares of the Plc. The acquisition of the shares was partly financed with a loan granted by the Plc. Previously, the acceptability of such financing arrangements has been considered from the point of view of company law. Now, the matter arose in connection with taxes.

In the said case, the holding company had no other operations besides owning the shares of the Plc on behalf of its shareholders. A shareholders’ agreement had been concluded concerning the possibility of merging the holding company with the Plc in accordance with the Finnish Limited Liability Companies Act. In addition, inter alia the option of the Plc acquiring its own shares from the holding company had been agreed on. The shareholders’ agreement also contained other such terms that concerned winding up the arrangement and which were ultimately meant for financially profiting the shareholders of the holding company.

The Supreme Administrative Court examined the arrangement in the light of provisions on tax evasion and ruled that the income received from the arrangement by the shareholder of the holding company could, with certain limitations, be considered earned income received from the employment relationship.

On the Effects of the Decision

Holding companies have been used in several incentive schemes meant for companies’ personnel. In addition, provisions concerning specifically ‘work-related dividend’ have been in force since the beginning of 2010. Now, the exploitation of holding companies has been intervened in based on the tax avoidance provision. Because of this decision, even though it concerns the ownership of the shares of a public company, the ownership structures of small and medium-sized companies should also be reassessed in order to eliminate potential tax risks.