The Ministry of Finance released a draft of a government bill for public comments in December 2015. According to the draft, Finland will implement Action 13 of the 2015 Final Report of the OECD PEBS project by adding requirements to prepare a master file and provide Country-by-Country (CbC) Reporting. In addition, the penalty provision will be extended to cover the new requirements.
Finland’s existing transfer pricing documentation requirements cover the contents of a local file. The wording concerning those will be adjusted to correspond to the final requirements in the Annex II to Chapter V of the Action 13 - 2015 Final Report. The requirements for a master file follow Annex I, and the requirements for a CbC report follow Annex III and Table 1 therein.
Finland may impose penalties both on a transactional basis and based on missing or inadequate TP documentation. The former, based on the amount of TP adjustment, not the resulting tax, will remain unchanged. For the latter, the maximum penalty will remain at 25.000 Euros, but it will be extended to the CbC reporting. In the future, negligence concerning the TP documentation or the CbC report, or any significant omission or faultiness of the data or due dates, may trigger a maximum penalty of 25.000 Euros.
As under the existing law, the proposal exempts from the TP documentation requirements purely domestic transactions and taxpayers belonging to a small or medium sized group in Finland or elsewhere. Controlled cross-border transactions exceeding 500.000 Euros annually between two related parties will be subject to the full documentation requirements, including the master and local files. Under the existing law, if the controlled annual transactions do not exceed this limit, the taxpayer is not required to prepare a functional, economic and financial analysis. While the proposal continues to exempt a taxpayer from the functional and financial analysis under the de minimis threshold when applicable, a problematic aspect is that it will require a full master file in those cases. This means that even if there were no qualifying controlled transactions involving a Finnish group company or branch, the latter will still be required to prepare a master file unless it belongs to a small or medium sized group as defined in Commission Recommendation 2003/361/EC.
It is proposed that that the new rules take effect for tax years starting on 1 January 2017 or thereafter. The CbC data have to be collected for the first time for the same tax years – i.e., those starting on or after 1 January 2017. The Tax Administration will issue more detailed instructions regarding the due dates and forms.
It is expected that the law proposal will pass in Parliament this year.