Finnish exit tax and freedom of establishment | KPMG Global
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Finland: Finnish exit tax and restriction on freedom of establishment

Finnish exit tax and freedom of establishment

The Advocate General of the Court of Justice of the European Union (CJEU) has delivered an opinion in a case concerning the exit tax provisions under Finnish tax law.


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CJEU Advocate General Kokott on 13 July 2017 delivered her opinion in case C-292/16 regarding the exit tax provisions of section 52 e (3) of the Finnish business income tax law, finding that the Finnish tax provisions providing for the immediate recovery of the tax are in breach of the freedom of establishment and because there are also less restricting measures to achieve the desired objective of the provision, the restriction on the freedom of establishment cannot be justified. 


In the case before the CJEU, a Finnish limited liability company transferred its Austrian permanent establishment to an Austrian group company with a transfer of business (as defined in section 52 d of the Finnish business income tax law). The Finnish tax administration applied the provisions of section 52 e (3) to the transfer, and recognized the probable alienation price of the assets as taxable income for tax year 2006. In an equivalent domestic transfer of business, the principle of continuity would have been applied, and the unrealized capital gains would not have been recognized as income at that time, but only when the assets are transferred. 

The Finnish exit tax provisions are based on Article 10(2) of the Merger Directive 90/434/EEC. The article allows the taxation of any profits or capital gains of permanent establishment resulting from a merger, division or transfer of assets, on condition that the EU Member State gives relief for the tax that, but for the provisions of the Merger Directive, would have been charged on those profits or capital gains in the EU Member State in which that permanent establishment is situated—similarly as it would have done if that tax had actually been charged and paid (a “fictive” tax credit). 

Advocate General’s opinion

The Merger Directive does not have a position on the timing of the taxation, as noted by the Advocate General in her opinion. 

In her opinion, the Advocate General stated that the Finnish tax provisions providing for the immediate recovery of the tax are in breach of the freedom of establishment. As there are also less restricting measures to achieve the desired objective of the provision (i.e., balanced allocation of the EU Member States’ taxing rights), the restriction on the freedom of establishment cannot be justified. 

Granting a fictive tax credit (i.e., deducting the tax payable in the country of the permanent establishment from the tax payable in Finland_ does not eliminate the breach because the fictive tax credit only eliminates double taxation, and does not change the timing of taxation, which in this case is discriminating. 

KPMG observation

The opinion is seen as being in line with previous case law of the CJEU regarding exit taxation—that Article 49 of the Treaty on the Functioning of the European Union does not inhibit the final confirmation of the amount of tax, but the immediate levying of the tax is in breach of the article and the principle of proportionality.

The Advocate General’s opinion is not binding on the court. The judges now will begin their deliberations in this case with judgment to be given at a later date. Tax professionals with KPMG in Finland (who have represented the claimant before the CJEU and domestic courts) are of the opinion that the CJEU’s judgment would follow the Advocate General’s opinion. 


Read a July 2017 report prepared by KPMG’s EU Tax Centre


For more information, contact a tax professional with the KPMG member firm in Finland: 

Timo Torkkel | +358 20 760 3370 |

Kristiina Äimä | +358 20 760 3698 |

Suvi Collin | +358 20 760 3169 |

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