Hannes Snellman Counsel in a Supreme Administrative Court Yearbook Case on Taxation of Dividend Paid on Merger Consideration Shares

Hannes Snellman acted as counsel for the taxpayer in a Supreme Administrative Court yearbook case confirming how to determine the mathematical value of merger consideration shares in the year of the merger. The mathematical value is important for taxation of dividends from unlisted companies because beneficial capital income tax treatment only applies up to 8% of the shares’ mathematical value.

In this case, a Finnish company was to merge to another Finnish company with a tax neutral merger during 2023. The merging company’s shareholders were to receive shares in the receiving company as merger consideration. After the merger, the receiving company was to decide on a dividend distribution, where dividend would also be paid on the merger consideration shares during the calendar year 2023.

The Central Tax Board had considered that, as the principle of continuity was applied to the merger, it was justified to apply continuity also to the mathematical value of the consideration shares in the year of the merger.

The Tax Recipients' Legal Services Unit appealed to the Supreme Administrative Court claiming primarily that the mathematical value during the merger year should be zero. The Supreme Administrative Court upheld the Central Tax Board’s positive decision.

The Supreme Administrative Court referred to Finnish law under which merger is taken into account when determining the mathematical value. The Supreme Administrative Court considered, among other things, that in the absence of more accurate provisions and when considering the principle of continuity applicable to the merger, the mathematical value of a merger consideration share in the year of the merger was the mathematical value of the share of the merging company divided by the number of merger consideration shares received for one merging company share.

The Supreme Administrative Court’s yearbook ruling confirms an important question of principle for Finnish tax law.

Hannes Snellman’s team included Heikki Vesikansa, Stefan Stellato, and Viivi Vikberg.