Skip to main content

Finnish Tax Authorities Gain Power Over Taxpayers

15th December 2021

Tax authorities around the world have been known to recharacterize transfer pricing transactions that don’t make commercial sense or can’t be adequately priced. But not in Finland. According to Finnish case law, the Finnish tax administration cannot recharacterize transfer pricing transactions structured by taxpayers unless the taxpayer is suspected of tax avoidance. (If they are suspected of such behavior, then all bets are off.) Fortunately for the Finnish government, those days are numbered. On December 9, the tax administration announced it has approved amendments to its transfer pricing legislation. The changes, which will become official on January 1, 2022, align Finland’s transfer pricing regulations with OECD guidelines—committing to the arm’s length principle, the arm’s length allocation of risk, and perhaps most notably, giving the Finnish tax authority the right to recharacterize related-party transactions that don’t make sense. OECD guidelines are a bible for both taxpayers and tax administrations, and the Finnish tax authority wants to seize the compliance powers granted in that guidance. That includes the blessing to recharacterize related-party transactions based on facts and circumstances as opposed to adhering to contracts that may or may not reflect the realities of a business. What does that mean for taxpayers? Let’s just say we would take functional analyses and documentation seriously. After all, if the government is going to the trouble of updating its transfer pricing regulations to gain more enforcement power, you can bet it’s going to make a point of using it.