Finnish Central Tax Board gave a published preliminary ruling on
5 October 2011 whether incorporating only one real property could
be regarded as a transfer of assets under Section 52d of the
Business Income Tax Act (360/1968).
The applicant was a Finnish foundation reckoned as a charitable
organisation in its last tax assessment. The foundation owned a
real estate comprising of several buildings and representing a
substantial amount of the assets of the foundation. The renting of
the real estate brought considerable revenues and the tax office
deemed in the taxation of fiscal year 2009 that the real estate was
used entirely for business purposes. The foundation did not merely
act as a passive owner but also took care of, e.g., maintenance and
management of all the buildings on a real estate.
The foundation planned to incorporate the real estate by means of
transferring the property with all related buildings, assets and
debts to a company to be established. Therefore, the foundation
requested a preliminary ruling from Finnish Central Tax Board if an
arrangement whereby the applicant transfers all its real estate
assets to a company to be established could be regarded as a
transfer of assets under the Business Income Act.
Central Tax Board accepted the view of the foundation according to
which the real estate formed one business unit for the purposes of
the Business Income Tax Act. The statement was contrary to the
established tax practise, according to which one real estate has
not been reckoned to form one independent business unit in a
transfer of assets (e.g. CTB 1996/101 and SAC 2010/323). In the
case at hand Central Tax Board reasoned the decision by stating
that the substantial property management and renting operations
were transferred to the company being established in accordance
with the transfer of the real estate. In addition to that, the real
estate was used entirely for business purposes. The decision was
based on the discretion of the Central Tax Board the conditions of
the arrangement affecting the evaluation as a whole.
The resolution of The Central Tax Board creates new possibilities
for the incorporation of real estate assets i.e. also one real
estate can be treated as an independent business unit. However, it
is still recommendable to plan transfer of assets carefully and in
many cases confirm the tax treatment by applying for an advance
ruling.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
