The Supreme Administrative Court gave on 22 October 2004 a decision, KHO:2004:93, regarding the share swap situation. According to this decision the fees paid to advisers could not be deducted as annual cost in taxation, even though this had been done in accounting. The adviser fees were considered to relate to the acquisition of shares, which lead to a conclusion that those expenses were deemed to be a part of the acquisition cost of the shares.
The deductibility of value added tax should also be taken into account. In decision KHO:2001:15 a company had a right to deduct the value added tax, which was included in the adviser fees relating to the sale of subsidiary shares accounted as fixed assets. The deduction right was based on the interpretation where the sale was considered to be a part of reorganisation of the business of the group. The costs derived from this reorganisation were considered as general expenses relating to taxable business activity of the group.
On the other hand in a more recent decision KHO:2004 T 1367 a newly established company did not have a right of VAT deduction on expenses relating to the start-up phase since the company had not presented objective explanation for starting the taxable business or taking any concrete action to start the intended taxable business. The decision has to be taken into account especially when establishing new companies as acquisition vehicles.
In business rearrangement cases more and more attention has to be paid into the fact that the adviser fees in all relate to the rearrangement of business or whether there is a possibility that some parts of the service could be deducted directly as annual cost in income taxation. Moreover it is to be observed whether there are such parts included in the service that do not have the right of deduction in value added taxation.
It is essential to the inspection that the advisor services can be specified and that they have been properly documented. Also organising and the documentation of the acquisition vehicle’s business are important.
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.