The Supreme Administrative Court has issued on 5 January 2011 a ruling concerning the change of generation relief of gift taxation (KHO 2011:1). In its ruling the SAC stated that the preconditions for the tax relief were not fulfilled since the donee was a minor and thus could not act as a board member in the company's board of directors as provided for in Chapter 6 Section 10 of the Finnish Companies Act.
The change of generation of a limited liability company was meant to be implemented in the way that, the donee himself being a minor, a substitute for a trustee appointed by the Local Register Office would act in the company's board of directors on the donee's behalf until he becomes major and would be appointed as an ordinary board member.
According to section 55(1) of the Finnish Inheritance and Gift Tax Act, a precondition for the change of generation relief is among others that the donee continues the business with the donated assets. The SAC stated that since the donee cannot act in the company's board of directors due to his minority and since a board member cannot specifically act on behalf of any given shareholder but the board member shall promote the company's interest in accordance with the Companies Act, the preconditions for the change of generation relief were not fulfilled. Thus, appointing a trustee for a minor to the company's board of directors is not considered as continuing the business with the donated assets.
This ruling of the SAC does not, however, forbid applying the change of generation relief in all the situations in which the donee is a minor. The minor can continue the business required by the law also in other ways than as a board member. Cases concerning the change of generation relief shall be planned and implemented carefully in order to ensure getting the relief.
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