Court Ruling On The Finnish CFC Legislation

The Finnish CFC legislation implies that a Finnish company may be subject to income tax for its share of the profit of a CFC regardless of whether these profits are distributed by the CFC to its shareholders or not. A CFC is defined as a foreign corporation owned and controlled by a Finnish tax resident that pays income tax in its domicile at a rate less than 60% of the Finnish corporate income tax rate.

On 20 March 2002 the Finnish Supreme Administrative Court issued a ruling concerning the applicability of the Finnish CFC legislation in a situation where a Finnish parent Company had a Belgian subsidiary (KHO 2002:26). In this ruling the Supreme Administrative Court stated that the Finland-Belgium double taxation convention did not prevent the application of the Finnish CFC rules to the Belgian subsidiary. In addition, the Court held that the rules did not amount to a restriction on the freedom of establishment within Article 43 EC or on the free movement of capital