The year 2017 brings with it significant changes to corporate taxation. Rectification and appeal procedures are being reformed in all tax categories. Other reforms concern the reporting and payment of unprompted taxes, such as VAT and employer contributions.
Inheritance and gift taxation and the tax rules for corporate changes of generation are also changing. Private undertakings and partnerships will be given the opportunity to make a special entrepreneur deduction in their taxes.
UNIFICATION OF TAX PROCEDURE
Uniform Three-Year Appeal Period
Changes to tax decision in all tax categories will now have to be sought from the Assessment Adjustment Board. The appeal period will be reduced from the current five years to three years in income taxation, inheritance and gift taxation and real estate taxation. The appeal period for VAT is already three years.
The three-year period is calculated from the start of the calendar year following the end of the tax year in question. However, a request for rectification can always be made within 60 days of the taxpayer being informed of the tax decision. Correspondingly, a decision of the Assessment Adjustment Board must be appealed to the Administrative Court within 60 days of the taxpayer being informed of the board's decision.
Tax Authorities Get Freer Hands to Rectify Taxation
The new act gives the Finnish Tax Administration the right to rectify errors it finds to the benefit or to the detriment of the taxpayer regardless of the nature or cause of the error. However, rectification cannot be carried out to the detriment of the taxpayer if the Tax Administration has investigated and expressly decided the matter unless new relevant information later comes up in the matter.
The deadline for rectification carried out on the Tax Administration's initiative is three years from the beginning of the calendar year following the tax year in question. However, the rectification period can, in some cases, be extended to four years if, for example, the Tax Administration receives information required for tax supervision exceptionally late. In certain tax matters (e.g. transfer pricing and intra-group structuring and financing arrangements), a longer six-year rectification period will be applied directly on the basis of the law.
The new rectification periods under the new law are applicable from the start of 2017. Taxation for 2016 and previous years will be subject to the old rectification periods and rules.
For more on the tax authority's ability to rectify taxation after the fact, read our blog post Will the New Year Deal the Tax Man the Best Hand?
Electronic Notifications to Become Mandatory
Unprompted taxes are taxes that the Tax Administration does not separately impose, but the company in question calculates, reports and pays on its own. These include VAT, employer contributions and withholdings from dividends. For the tax years beginning on 1 January 2017 and thereafter, tax returns concerning unprompted taxes must be filed electronically, whereas it used to be possible to file a paper form. In future, it will only be possible to file paper returns for a special reason, such as a technical obstacle. Electronic returns can be filed in the Tax Administration's OmaVero service, which replaces the Tax Account service. The return can also be filed using some types of accounting software.
More Freedom to Choose Tax Period for Unprompted Taxes
The default tax period for unprompted taxes, i.e. the period for which the tax is reported and paid, will continue to be the calendar month. However, companies will have more freedom to choose an extended three- or twelve-month tax period, as the maximum annual turnover thresholds for the extended periods are being raised to 100,000 euros for the three-month period and to 30,000 euros for the twelve-month period.
The right to apply extended tax periods will continue to be granted based on separate application if the turnover thresholds are not exceeded. The chosen tax period is only binding on the company for a year at a time, and the tax periods for VAT and employer contributions can be of different length.
Use of Payment-Based VAT to Expand - Accrual Basis to Remain Main Rule
The main rule in VAT will remain the same, i.e. an accrual procedure in which VAT is paid on sales and deducted from purchases at the time of invoicing.
However, small companies with a turnover of no more than 500,000 euros can pay the VAT on sales and deduct the VAT on purchases on a payment basis. In the payment-based system, a company allocates VAT to the month in which it receives payment for its sales or pays for goods or services it has purchased. If a company opts for the payment-based system, it must be applied to both purchases and sales.
Correction of Tax Filings Made Easier
Companies that have to correct their reported unprompted taxes or annual filings no longer have to file a separate supplementary return. The corrections can now be made by filing a new return replacing the original in which the information in the section being corrected is restated at the correct amounts.
In the new procedure, the taxpayer can correct minor errors in the return for the next tax period without filing a new replacement return for the original tax period. An error is considered minor if the amount of the misstatement (either positive or negative) is no more than 500 euros. This threshold is assessed separately for each tax category.
Changes to Punitive Tax Increases and Late Fees for Unprompted Taxes
Punitive tax increases for unprompted taxes will be unified. From now on, the punitive increase is a maximum of 50% of the amount of the tax imposed to the detriment of the taxpayer. The level of the punitive increase is determined formulaically, with the base level being 10% of the imposed tax. The grounds for imposing punitive increases will remain the same. An increase can be imposed if the taxpayer has neglected its obligation to file a tax return or filed an incomplete or inaccurate tax return.
The method for the calculation of and the amounts of punitive tax increases for unprompted taxes are also changing. Following the reform, information on the tax period can be rectified during a 45-day period without penalties for delay. However, late fees are calculated for the first tax return of the tax period for the first 45 days (three euros per day) and after that at a rate of two per cent of the amount of tax reported late.
RELIEFS AND INCENTIVES
The state is seeking to support entrepreneurship with a new special deduction. Private undertakings and partnerships can make this deduction from their business taxation once a year, and the amount is five per cent of the taxable net income in the business source of taxation.
Changes to Inheritance and Gift Taxes
Inheritance and gift taxes have been cut on every level of the tax scales. The cuts are mainly focused on the first tax bracket, which is applied, among others, to the spouses or the immediate heirs in the direct line of ascent or descent of the deceased or person giving a gift.
The capital gains tax on a farm or company received as inheritance or a gift has also changed. When the person who received the inheritance or gift sells a farm or company subject to change of generation tax reduction provided for in the Inheritance and Gift Tax Act, the acquisition cost deductible from the sales price will be considered to be the reduced amount that inheritance or gift tax was paid on at the time. Prior to this amendment, the full unreduced acquisition cost of the property could be deducted from the sales price when calculating the capital gains tax.
The tax exemption for payments made to the next of kin or to the estate of the deceased on the basis of life insurance is being withdrawn. However, this amendment will not enter into force until the start of 2018.
New Act on Employer Health Insurance Contributions
The terminology for indirect employer costs has changed: instead of employer social security contributions, the new term is employer health insurance contribution. The basis for the contribution remains the same, but the amount has been reduced to 1.08% of the paid remuneration. This means that the amount of indirect costs payable by employer companies will be reduced.