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May a foreign supplier establish its own entity to import and distribute its products in your jurisdiction?
Yes. Whether from the European Economic Area (EEA) or not, inward investments are welcome. For private limited companies, generally, the only hurdle is the paid-in minimum share capital of €2,500. Depending on which by-laws (articles of association) you require, the cost of setting up a company varies between about €3,000 and €10,000, including the fixed registration fee, establishing a bank account and tax account for the purpose of income tax, VAT and the employer liabilities.
May a foreign supplier be a partial owner with a local company of the importer of its products?
There are no quota limitations for foreign participation.
What types of business entities are best suited for an importer owned by a foreign supplier? How are they formed? What laws govern them?
The private limited liability company is by far best suited. It can be formed by one person, whether physical or juridical. Mainly, all that is needed is to adopt the by-laws containing, at a minimum, the company name, domicile and field of operations, sign the memorandum of association that rarely fills more than one sheet of paper, and file the notification with the Companies’ Registry: the Trade Registry, operated by the Finnish Patent and Registration Office. However, a person must be careful not to encroach upon anyone else’s trade name or trademark, and be able to bring forth evidence to the effect that the subscribed number of shares has been fully paid for in advance to a bank account within the European Union, this being, additionally, confirmed by a chartered accountant and all the directors to be registered.
In principle, the Companies Act (624/2006), and for the incorporation procedure the Trade Registry Act (129/1979) and Ordinance (208/1979) govern them.
Does your jurisdiction restrict foreign businesses from operating in the jurisdiction, or limit foreign investment in or ownership of domestic business entities?
In general, the foreigner-specific restrictions in respect of operating are limited to foreigners from outside the EEA and concern mainly the fields of defence, banking, financing and insurance. In general, there are no restrictions in respect of title to shares or business assets. However, a business operating in a narrow business sector, perceived as putting at risk an important national interest, such as in the business of banned dual-use goods requiring a licence for export, would be well advised, under the Monitoring Act (1612/1992), to seek formal permission from the Ministry of Employment and Economy. This notwithstanding, running a branch of a foreign entity from outside the EEA requires the consent of the Companies Registry. Normally, consent is readily granted. If the foreign business runs a Finnish subsidiary, at least one of the directors, including the managing director (eg, CEO, president), must be a resident of the EEA, unless the Companies Registry grants an exemption. The auditor should be a resident authorised or approved public accountant. In the event that there is no person within the EEA entitled to sign in the name of the subsidiary or the branch, there must be a registered agent for service of process in Finland.
May the foreign supplier own an equity interest in the local entity that distributes its products?
Yes. See question 4.
What are the tax considerations for foreign suppliers and for the formation of an importer owned by a foreign supplier? What taxes are applicable to foreign businesses and individuals that operate in your jurisdiction or own interests in local businesses?
According to the main rule, foreign businesses are taxed on income sourced in Finland only. On the formation of an importer owned by the foreign supplier, no tax is levied, just a modest handling fee.
Should the foreign business have a permanent establishment (PE) in Finland, it will be liable to tax on all income attributable to the PE. Moreover, dependent on its domicile and the kind and origin of the products imported, the foreign supplier may be subject to customs duties as well. In addition, with regard to its imports, the supplier may be subject to car purchase tax and excise duties levied on, for example, tobacco, alcoholic beverages, soft drinks and liquid fuels.
Given that foreign businesses are taxed only on income sourced in Finland, and that the foreign business will be liable to tax on all income attributable to the PE, sales revenue, interest, royalties and capital gains are included, but costs, expenses and losses attributable to the business are deductible. If a PE’s business operation results in loss, such loss will be deductible during the subsequent 10 tax years, applying the same loss carry-forward rules that are applied in respect of Finnish business entities. However, these rules will not apply should more than half the ownership of the company change hands.
Dividends are generally totally tax-exempt both domestically and under either the EU Parent-Subsidiary Directive, subject to the 10 per cent minimum shareholding requirement, or tax-exempt to a quarter subject to a double tax treaty between Finland and the country from which the dividends are distributed. The corporate tax rate is 20 per cent. Since there are currently no thin capitalisation restrictions, a business can be financed from abroad, however, subject to some rather intricate rules on the deductibility of interests paid in excess of €500,000.
Generally, the tax treaties provide for tax on dividends and royalties varying between 5 and 15 per cent to be withheld at source. However, where the EU Parent-Subsidiary Directive is applicable, no withholding tax is levied on profit distribution, such as dividends, to a parent company holding, directly, at least 10 per cent of equity of the profit-distributing company. But where the Directive is not applicable, the withholding tax at source on dividends is 15 per cent.
However, for other non-resident corporate bodies, generally, the rate of withholding is 20 per cent on profit distribution, interest (where not completely tax-exempt) and royalties. For physical persons, the rate is 35 per cent on income from employment, pensions and distributions by employee investment funds, unless otherwise agreed in the tax treaty concluded with the recipient’s country of residence. Most income of non-residents derived from Finland, other than above indicated, is taxed on an assessment basis.
From the viewpoint of the foreign business electing to use as its vehicle the limited liability company, it is notable that Finland has concluded 116 treaties for avoidance of double taxation and tax evasion, some of which are multilateral and take prevalence over domestic tax law. The most frequent method for eliminating double taxation is the ordinary credit method.
Where there is no double tax treaty with the domicile state of the foreign taxpayer, the country’s tax rights will be determined by domestic tax laws.
Non-Finnish residents are taxed in Finland on income sourced in the country, subject to any applicable treaties for avoidance of double taxation. Under certain conditions and subject to the approval of an application, salary earners with special expertise may, for a maximum period of four years, be entitled to participate in a regime permitting the employer to withhold, in lieu of income and municipality tax, 35 per cent of salary earned. Otherwise, alien employees will be liable for progressive tax on their salary or wages should they stay in Finland for longer than six months, regardless of citizenship. If the stay lasts no longer than six months, the Finnish employer will collect 35 per cent tax at source on the pay, as well as withhold social security payments unless the pay is effectuated by and encumbers a foreign company. Royalties paid to holders of intellectual property rights who are not Finnish residents are subject to a 28 per cent tax at source. The tax rate is 30 per cent for capital income, and 32 per cent where capital income exceeds €40,000.
In general, goods and services supplied in Finland in the course of business are subject to VAT. The general rate of VAT is currently 24 per cent, although the rate for food and restaurant and catering services is 14 per cent and the rate for categories such as books, subscribed newspapers, cultural events, medicines, fitness services, passenger transport and accommodation is 10 per cent.
Real estate tax is assessed on the taxable value of the property, whether land or buildings. Transfer of title to shares of a private limited liability company is generally subject to a transfer tax of 1.6 per cent of the price agreed. On transfer of real estate, the tax rate is 4 per cent.
Local distributors and commercial agents
What distribution structures are available to a supplier?
For both newcomers and established suppliers, the commercial agency provides a means of penetrating and exploiting the market as well as launching a selection of new products. For supply of heavy capital equipment, such as industrial machinery, the agent, whether the commercial or the undisclosed commission agent and with or without a consignment stock, comes in handy. However, frequently, best suited for products requiring local storage or modification is the variety of available open or closed distributorship arrangements, such as the dealer, the value-added reseller or the selective distributor, the latter mode being favoured by high-tech as well as luxury products manufacturers.
Apart from the business format franchise contract, the product distribution franchise contract is a recognised mode of distribution of, in particular, daily consumer products regardless of whether the following apply:
- the franchisee also carries products of suppliers other than those of the franchisor;
- the trademark is established;
- the system feature of the franchisor is weak or strong; or
- the services, such as training and continued assistance, are good or poor.
The same or similar applies to a variety of trademark licensing arrangements. An optional manufacturing licence contract may warrant the local distributor the ability to manufacture the quantities demanded should the supplier no longer be able to meet the demand. In particular, in the latter case, the manufacturer or supplier may wish to participate, by means of shareholding, in the business of its distributor.
Legislation and regulators
What laws and government agencies regulate the relationship between a supplier and its distributor, agent or other representative? Are there industry self-regulatory constraints or other restrictions that may govern the distribution relationship?
The fairly narrow concept of commercial agency is regulated by the Act on Commercial Representatives and Salesmen (417/1992) (the Commercial Agents Act). Such an agent, in the statute denoted as a commercial representative, is defined as an entrepreneur who, in a representation contract concluded with another (the principal) has undertaken to promote, continuously, the sale or purchase of goods on behalf of the principal by obtaining offers for the principal or by concluding sales or purchase contracts in the name of the principal.
Thereby, outside the purview of the Act fall all other types of agents, such as the concealed agent and consignment or commission agent among others, as well as any kind of agency for the supply of services.
The relationship between a supplier and its distributors of goods or services is not regulated by any particular statute, but by a number of more or less general statutes, such as the Contracts Act (228/1929), the Sale of Goods Act (355/1987) and the Unfair Business Practices Act (1061/78). Of particular importance are the EU competition rules (see question 13).
The Competition and Consumer Authority (FCCA) is the government agency exerting certain power in respect of competition, but is generally regarded as lacking the means to effectively have an impact on consumer issues.
There is a host of self-regulatory constraints and guides that govern the distribution relationship, such as those published under the auspices of the International Criminal Court (ICC). One most prominent is the translation into Finnish of the Consolidated ICC Code of Advertising and Marketing Communication Practice 2011. In addition, there are a number of guidelines as to advertising and marketing. Moreover, there are the Council of Ethics in Advertising and the Board of Business Practice, both sub-agencies of the Finnish Central Chamber of Commerce and specialised in business-to-business sales and marketing issues. In particular, for convincing courts and arbitral tribunals on ethical advertising and fair business practice, the opinions of these two bodies are held in high esteem.
Are there any restrictions on a supplier’s right to terminate a distribution relationship without cause if permitted by contract? Is any specific cause required to terminate a distribution relationship? Do the answers differ for a decision not to renew the distribution relationship when the contract term expires?
No, freedom of contract prevails. Apart from where the contract is made for a certain duration, the prevailing opinion is that a party to a distribution relationship cannot be forced to be bound, perpetually, and accordingly, unless the parties contractually agree otherwise, both parties are deemed to be allowed to terminate the contract without any specific cause. The aforementioned notwithstanding, there ought to be a certain period of time within which the opposite party may adapt themselves smoothly to the change of circumstances, and therefore, the length of the period of notice may vary depending on a number of reasons.
Any clause to the effect that the contract term may be renewed provides for accommodating to the changed circumstances.
Is any mandatory compensation or indemnity required to be paid in the event of a termination without cause or otherwise?
Save where the relationship is qualified as that of commercial agency, there is no mandatory compensation or indemnification due to the distributor, commission agent or self-employed intermediary solely for the reason that the contract was terminated without cause. However, where essential properties of the relationship are similar to those of a commercial agent, case law suggests the courts may be inclined to make use, analogously, of the provisions of the Commercial Agents Act harmonised to article 17, paragraph 2 of the EU Directive 86/653/EEC (Council Directive of 18 December 1986 on the coordination of the Member States relating to self-employed commercial agents). (Implications of such analogous application can be found in Supreme Court case KKO 42 (1987).) Where the relationship is terminated without taking heed of the need for providing for a period of notice enabling the opposite party to accommodate him- or herself to the changed circumstances, the intermediary should be able to count on being compensated for the loss caused. Of course, the same is true where the termination can be demonstrated as being abusive.
Transfer of rights or ownership
Will your jurisdiction enforce a distribution contract provision prohibiting the transfer of the distribution rights to the supplier’s products, all or part of the ownership of the distributor or agent, or the distributor or agent’s business to a third party?
Based on the principle of freedom of contract, yes. However, the general rule of the Contracts Act admitting the competent court to adjust a contract provision found unconscionable has been applied in court practice on a number of occasions. The main thrust of the rule is that should the court deem a contract term unfair or the application of such term leading to an unfair result, the term may be adjusted or set aside (section 36 of the Contracts Act as amended by Law 956/1982). In particular, should the distributor or agent run the risk of going out of business because of a contract provision prohibiting him or her at the peril of payment of damages from transferring the ownership of his or her business, for a lengthier period of time and with no regard to the change of circumstances, the court may determine such provision be considered grossly unfair, unreasonable or otherwise unconscionable.
Regulation of the distribution relationship
Are there limitations on the extent to which your jurisdiction will enforce confidentiality provisions in distribution agreements?
No, there are none. But in respect of confidentiality provisions, the general rule of the Contracts Act admitting the competent court to adjust a contract provision found unconscionable may be applied.
Are restrictions on the distribution of competing products in distribution agreements enforceable, either during the term of the relationship or afterwards?
Restrictions are generally enforceable subject to being in compliance with the applicable competition laws, which according to the main rule provide that a competition prohibition as to competing goods or services must not, during the contract term, last for longer than five years or for one year after termination, except where by derogation permitted pursuant to the applicable competition rules (Commission Regulation (EU) No. 330/2010, article 5, paragraphs 2 and 3, on the application of article 101(3) of the Treaty on the Functioning of the European Union (TFEU) to categories of vertical agreements and concerted practices). It has to be remembered, however, that the above notwithstanding, the members of a selective distribution system must not be, whether directly or indirectly, imposed any obligation causing such members not to sell any brands of competing suppliers.
May a supplier control the prices at which its distribution partner resells its products? If not, how are these restrictions enforced?
No, the supplier is not even permitted to set maximum prices not to be exceeded by the distributor since such practice interferes with the distributor’s freedom to set his or her own prices. However, by means of price recommendations the supplier may influence resale pricing provided those recommendations do not amount to resale price maintenance or price fixing, which is strictly prohibited under domestic and EU law, whether directly or indirectly, such as by means of determining the distributor’s sales margin or maximum reductions to be granted to customers.
Resale price maintenance in vertical agreements is a hardcore restriction considered by the antitrust authorities as unlawful and not exemptable. Since, in most cases, the commercial agent is integrated in the principal’s sales network and also otherwise a genuine agent, the agent remains outside the scope of the competition rules concerning price maintenance.
May a supplier influence resale prices in other ways, such as suggesting resale prices, establishing a minimum advertised price policy, announcing it will not deal with customers who do not follow its pricing policy, or otherwise?
Resale price recommendations and suggestions are permitted, but establishing a minimum advertised price policy may, depending on its contents, be branded as anticompetitive. This, however, would not foreclose advertising recommended prices. Nevertheless, any defensive boycott in order to punish violations of agreements that restrain competition are prohibited types of discrimination. The same is true of any predatory boycotts.
May a distribution contract specify that the supplier’s price to the distributor will be no higher than its lowest price to other customers?
There are no restrictions on including a most-favoured-customer clause in the contract.
Are there restrictions on a seller’s ability to charge different prices to different customers, based on location, type of customer, quantities purchased, or otherwise?
There should be no obstacle to applying different prices to different types of customers, in different locations, granting different rates of discount to individual customers and so on, provided the criteria are not arbitrary and are applied consistently.
Geographic and customer restrictions
May a supplier restrict the geographic areas or categories of customers to which its distribution partner resells? Are exclusive territories permitted? May a supplier reserve certain customers to itself? If not, how are the limitations on such conduct enforced? Is there a distinction between active sales efforts and passive sales that are not actively solicited, and how are those terms defined?
The supplier may make the distributor refrain from actively selling to certain geographical areas or categories of customers, but not from selling passively, and only if these geographical areas or categories of customers are exclusively reserved for the distributor, agent or the principal him- or herself. However, in the event of a selective distribution system, the rule expressly authorising the restriction of sales by the members of a selective distribution system to unauthorised distributors within the territory reserved by the supplier to operate that system is applicable (Commission Regulation (EU) No. 330/2010, article 4b, section iii on the application of article 101(3) TFEU to categories of vertical agreements and concerted practices).
Exclusive territories are permitted, in principle, and are customary. A supplier may reserve certain customers to itself, as discussed above.
May a supplier restrict or prohibit e-commerce sales by its distribution partners?
The general rule is that a supplier may not restrict or prohibit e-commerce sales by its distribution partners. However, the supplier may require certain qualitative criteria of the e-commerce. Neither can the supplier restrict or prohibit passive reselling outside the distribution partner’s assigned territory. However, restriction of active sales outside a distributor’s assigned territory is permitted.
Refusal to deal
Under what circumstances may a supplier refuse to deal with particular customers? May a supplier restrict its distributor’s ability to deal with particular customers?
Unless refusal to deal amounts to abuse of a dominant position or is deemed to be unfair business practice, such refusal is part of the freedom of contract.
Apart from making the distributor refrain from active sales in certain geographical areas or to certain categories of customer, within the frame of a selective distribution system the supplier may restrict its distributor’s ability to deal with unauthorised distributors outside the territory of the system (ie, non-members of the system).
Under which circumstances might a distribution or agency agreement be deemed a reportable transaction under merger control rules and require clearance by the competition authority? What standards would be used to evaluate such a transaction?
At least in principle, under the merger control rules, a distribution contract may be deemed a reportable transaction if the supplier exploits market power in trading relationships with distributors to earn excessive profits or gain other advantages. The contract can also require clearance if it amounts to the supplier exerting exclusionary or predatory abuses, such as the imposition of unfair selling prices or conditions not falling within the sphere of the vertical restraints generally applied to distribution contracts. Such practices eventually result in concentrations increasingly deteriorating the conditions for competition which may be fateful in a small market, such as the Finnish market. Under the merger control rules, a distribution contract is a reportable transaction requiring clearance by the competition authorities where the combined turnover of the parties exceeds €350 million and the Finnish turnover of at least two of the parties exceeds €20 million each.
The standard used for evaluating the transaction, as to the calculation of the turnover, is the government decree on the calculation of turnover of parties to the concentration (1011/2011), and the standards and practices described in the Guidelines on Merger Control issued by the FCCA. If the concentration falls within the scope of Council Regulation (EEC) No. 139/2004 on the control of concentrations between undertakings, the acquisition shall be notified to the European Commission, which has the sole right to examine the concentrations having a Community dimension.
Unless it is about an untrue or non-genuine agency agreement, the agent as an auxiliary of his or her principal remains beyond the antitrust rules.
Do your jurisdiction’s antitrust or competition laws constrain the relationship between suppliers and their distribution partners in any other ways? How are any such laws enforced and by which agencies? Can private parties bring actions under antitrust or competition laws? What remedies are available?
Although single branding is frequently implemented by means of a non-competition clause, it can also occur otherwise and be objectionable without either a five-year or one-year period of grace (see question 13). This is the case if competitors are excluded from the market. Tying arrangements may affect both the markets for those manufacturing the relevant products as well as the price of the products. In addition to the prohibitions against anticompetitive agreements, there is the prohibition against abuse of dominance that constrains the relationship between suppliers and their distribution partners.
Suppliers and their distribution partners must comply with section 5 of the Competition Act (948/2011) and articles 101 and 102 TFEU. The competent agency to enforce such laws is the FCCA.
Private parties can bring actions under antitrust or competition laws. Liability in damages under section 20 of the Competition Act is due to anyone who has suffered damage or loss because of infringement of sections 5 or 7 of the Competition Act, or articles 101 or 102 TFEU.
The available remedies are damages for economic loss, whether direct or indirect, including but not limited to expenses, price difference and lost profit. Any losses because of price discrimination, excessive pricing due to a cartel or the refusal by a party in a dominant position to supply are deemed as direct losses to be compensated.
Are there ways in which a distributor or agent can prevent parallel or ‘grey market’ imports into its territory of the supplier’s products?
No, save for selective distribution (Commission Regulation (EU) No. 330/2010, article 1(e) on the application of article 101(3) TFEU to categories of vertical agreements and concerted practices).
What restrictions exist on the ability of a supplier or distributor to advertise and market the products it sells? May a supplier pass all or part of its cost of advertising on to its distribution partners or share in its cost of advertising?
The main provisions are contained in the Unfair Business Practice Act requiring truthfulness in connection with all sales and marketing, including advertising, and in the Consumer Protection Act (38/1978) regulating sale and marketing to consumers.
There is no statutory limit with regard to whether a supplier may pass all or part of its cost of advertising onto its distribution partners or share in its cost of advertising.
How may a supplier safeguard its intellectual property from infringement by its distribution partners and by third parties? Are technology-transfer agreements common?
Safeguarding of intellectual property rights (IPRs) is implemented mainly contractually and by means of registration. Any one individual having made an invention susceptible to industrial application, or his or her successor in title, is entitled, on application, to a patent. Exclusive rights for a trademark may be acquired, even without registration, after the mark has become established. A trade symbol is considered established if it has become generally known in the appropriate business or consumer circles in Finland as a symbol specific to the goods or services of its proprietor. Any artistic or literary work, independently originated by a human being, and of original character, expressed in any manner or form, qualifies for copyright. In respect of software and databases, sheer originality is enough. The requirement fulfilled, copyright arises by virtue of itself. Only copyright, know-how and trade secrets can be registered.
The supplier is encouraged to safeguard its IPRs by means of provisions to the effect that the distributor is under a duty to inform the supplier of infringement of its IPRs, to assist it in defence of its rights and not to reveal, either during the currency of the contract or after its termination or expiry, the supplier’s trade or commercial secrets or other confidential information, such as know-how and technical data, nor to use such secrets or confidential information for purposes other than those of the contract.
Technology-transfer agreements are common.
What consumer protection laws are relevant to a supplier or distributor?
A number of laws and decrees supplement the Consumer Protection Act (38/1978), such as the Act on Provision of Information Society Services (458/2002) and the Communications Market Act (393/2003), both aiming to ensure reasonably priced communication services for consumers. In addition, there is the Consumer Safety Act (920/2011), the Act on the Safety of Toys (1154/2011) and the ancillary government decree, plus the decree on certain chemical requirements concerning toys (1352/2013). Moreover, there are the Government Decrees on the Data to be provided on Consumer Goods and Services (613/2004), on Price Information on Consumer Products and Services (553/2013), and concerning unfair business-to-consumer commercial practices (601/2008, implementing the EU Unfair Commercial Practices Directive 2005/29/EC); the Food Act (23/2006); the Accommodation and Nutrition Agency Act (308/2006); the Package Tour Agency Act (939/2008); the Act on the Provision of Services (implementing Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market, 1166/2009); the Insurance Contracts Act (543/1994); the Debt Collection Licence Act (517/1999) as well as a host of provisions concerning investment guidance. Generally applicable supplemental statutes are the Interest Act (633/1982), the Debt Collection Act (513/1999) and the Criminal Code (1889/39), the latter of which includes chapters on business offences and on offences endangering health and safety (consumer credit offence (Criminal Code, Chapter 30, section 3), charter trip company violation and charter trip company offence (Criminal Code, chapter 30, section 3a), health offence (Criminal Code, Chapter 44, section 1)).
Briefly describe any legal requirements regarding recalls of distributed products. May the distribution agreement delineate which party is responsible for carrying out and absorbing the cost of a recall?
Any consumer product found perilous to a person’s health or property where the peril is unavoidable by any other means can, by the local regional state administrative agency being supervised by the Safety and Chemicals Agency, or by the Safety and Chemicals Agency itself, be ordered, inter alia, to be recalled at the expense of the distributor. The same applies to consumer products lacking the CE marking denoting conformity with the relevant EU requirements (Consumer Safety Act (920/2011), Chapter 6).
Freedom of contract provides that there are no restrictions on the agreement delineating which party shall be responsible for carrying out and absorbing the cost of a recall.
To what extent may a supplier limit the warranties it provides to its distribution partners and to what extent can both limit the warranties provided to their downstream customers?
As a general rule, the principles of freedom of contract provide that there is no obstacle to such agreement between partes, albeit not in relation to any third party. In addition, parties must take heed of the provisions permitting courts, at the request of the opposite party, to ‘rewrite’ the contract. See question 11.
However, the Consumer Protection Act period of six months’ defect assumption from passing of the risk to the consumer cannot be validly limited to the disadvantage of a consumer. In terms of Finnish consumer law, a warranty always refers to the assumption of liability by the seller for the fitness or other characteristics of the goods or services, for a fixed period of time, and is, accordingly, to qualify as an advantage to the consumer. Any goods or services, whether consumer or not, must always meet the specifications set out in any guarantee statement or relevant advertising under pain of the consumer being eligible to claim cancellation of the purchase or alternatively price reduction, and in either case compensation for their loss.
Are there restrictions on the exchange of information between a supplier and its distribution partners about the customers and end users of their products? Who owns such information and what data protection or privacy regulations are applicable?
Yes. The Personal Data Protection Act puts the Finnish distributor under a number of obligations to ensure that all personal data is processed in accordance with the standards and requirements specified therein. For the purpose of the Personal Data Act personal data means any information on a private individual and any information on his or her personal characteristics or personal circumstances, where these are identifiable as concerning him or her or the members of his or her family or household, and processing means collection, recording, organising, use, transfer, disclosure, storage, manipulation, combination, protection, deletion or erasure of personal data, as well as other measures directed at personal data (Personal Data Act (523/1999), sections 3 and 8). On transfer of personal data to a third country, the Personal Data Act states that a transfer may take place only if that third country ensures an adequate level of protection, or if the European Commission pursuant to its competence under the Data Protection Directive finds that a third country ensures an adequate level of protection by reason of its domestic law or its international commitments. In addition, the statute states, expressly, that insofar as the Commission has declared that some a third country does not afford an adequate level of protection of personal data, transfer of personal data is not permitted to such country. Thus, Finland is to comply with the Maximilian Schrems decision of 6 October 2015. However, there are a host of exemptions providing for subterfuges. Such is the dubious permitting transfer of data ‘for the conclusion or enforcement of a contract’, considered to the benefit of the data subject, between the processor or controller and a recipient or third party.
The title to data protected under the Personal Data Protection Act is not regulated statutorily. Therefore it must be deemed as being the property of the one who has collected it, their successor or assignee.
May a supplier approve or reject the individuals who manage the distribution partner’s business, or terminate the relationship if not satisfied with the management?
Such contractual provision is, in principle, enforceable. Apart from the risk of illegitimate use of such provision, it may, however, in practice, ensue in making the distributor the subordinate of the supplier to such a degree that he or she may be regarded as being an employee of the supplier.
Are there circumstances under which a distributor or agent would be treated as an employee of the supplier, and what are the consequences of such treatment? How can a supplier protect against responsibility for potential violations of labour and employment laws by its distribution partners?
To be considered an employee, and be at least in part submitted to labour law, the distributor or agent is to be considered as acting under the direction and supervision of the supplier and, simultaneously, lacking the responsibility for financial risk. Small income may alone constitute a factor putting the distributor or agent in a position equal to that of an employee. It may appear that the distributor or agent is submitted to work under the direction of the supplier where involvement, in person, is required, or where the supplier is entitled, at its discretion or very frequently, to issue new instructions to the distributor or agent, the latter being required to adhere to such instructions and the supplier allowed to monitor this adherence, or where the supplier is permitted to amend the contract at its discretion. Accordingly, importance is placed on the consciousness and intent of the parties as well.
If the distributor or agent is found to be a de facto employee and not an entrepreneur, the result may be claims against the supplier for vacation benefits and for such protection against dismissal, termination or whatever severance that an employee is considered to deserve under the Employment Contracts Act (55/2001) and, for social security purposes, claims from authorities considering the supplier liable for undeclared social security premiums. Although of course rather rare, such qualification as an employee for the purpose of the benefits extended under labour law may become constituted because of careless or negligent contract drafting, or because the arrangement in reality is allowed to degenerate into a state in which the distributor or agent is acting under the supplier’s direction and supervision and not as an independent entrepreneur putting capital at risk. This may be the case where supplier-owned outlets are converted into franchises. One method of diminishing the risk of confusion that is advocated by some experts may be to see to it that the distributor or agent is a limited liability company instead of a sole proprietor.
Should the above criteria for the distributor or agent to be considered an employee exist, and should the distributor or agent, simultaneously, have failed to take out and maintain an insurance policy for at least the minimum statutory pension scheme in his or her trade, for the purpose of pension insurance premiums, he or she may be regarded as an employee, and consequently, the supplier may become liable for such insurance premiums, including any in arrears as well as default interest.
Again, in the event that the above criteria for a distributor or agent to be considered an employee exist, and the distributor or agent fails to pay the advance taxes or the final taxes assessed, the risk exists that the tax authorities will consider the distributor or agent an employee, and accordingly debit the taxes in arrears with the latter. Under these circumstances, also the question of the supplier’s vicarious liability arises whereby the supplier may be held liable for the acts of the distributor or agent.
Whenever there is doubt as to whether the distributor or agent is to be regarded as an independent entrepreneur, it is advisable to seek a ruling from the tax authorities.
A supplier can protect itself against responsibility for potential violations of labour and employment laws by its distribution partners by means of not depriving the self-employed intermediary of its independence, as discussed above and by means of contractual stipulations to the effect that the distribution partners indemnify and hold the supplier not liable for any consequences of being deemed an employee, such as making good any amounts it may have to pay to such employee as well as to any third parties for the benefit of the employee of the distributor.
Is the payment of commission to a commercial agent regulated?
The payment of commission is provided for under the Commercial Agents Act (Act on Commercial Representatives and Salesmen, sections 10 to 15). In the event that the parties have failed to agree on the payment of commission, the commercial agent is still entitled to commission on any transaction concluded during the period of validity of the agency contract where the transaction has been concluded as a result of his or her action or with a third party whom the agent has previously acquired as a client for the principal for transactions of the same kind or, if the agent has been entrusted with a specific geographical area or group of clients, the transaction has been concluded with a third party belonging to that area or group of clients.
Moreover, the agent is entitled to commission on any transaction concluded after the termination of the agency contract if the transaction has been concluded in the manner referred to above and the offer, whether to purchase or to sell, reached the principal or the agent prior to the termination of the agency contract or if the transaction can be deemed mainly attributable to the contribution of the agent during the period of validity of the agency contract and the transaction was concluded within a reasonable period after the termination of the contract. Any contracting to the effect that the right to commission is to arise later than at the time when the third party has fulfilled his or her performance obligation, or should have done so if the principal had fulfilled his or her performance obligation in accordance with the transaction, does not bind the agent.
Unless the agent consents thereto, the agent’s right to commission is not affected should the principal agree with the third party on cancelling the transaction or amending its terms. In the absence of any agreement on the amount of the commission payable, the commission shall be determined on the basis of the remuneration customarily paid for the execution of the same or corresponding activities at the location of the agent’s operating. If, therefore, the amount of the commission cannot be determined, the agent is entitled to a commission that is reasonable under the circumstances. The payment shall be effected by the end of the calendar month during which the commission accrued.
Good faith and fair dealing
What good faith and fair dealing requirements apply to distribution relationships?
The requirement that the contract must be negotiated and executed in good faith is emphasised in Finnish jurisprudence. The concept of good faith also underlies the Contracts Act, which is the basis of each and every distributorship founded on Finnish law. Accordingly, the principle of culpa in contrahendo is also emphasised. The carrying force is loyalty between the parties and each party ought to deal loyally, also paying attention to the advantage of the other party. Therefore, when interpreting a contract, weight is primarily given to the following issues:
- in a like situation, how do parties normally act;
- what is to be assumed from the parties;
- what prudence and due diligence require in any particular trade;
- what purposes does the contract serve;
- what ends did the parties have in mind (any disloyal intentions); and
- at what stage did the parties know what?
For commercial transactions between the supplier and the distributor, the Sale of Goods Act is founded on the concept of good faith as well as fair dealing. The same is true as to the Contracts for the International Sale of Goods, which is the assumed applicable set of rules for the sale of goods in trade outside of the purview of the Nordic countries. Insofar as the element of representation is concerned, the analogous application of the Commercial Agents Act requires that regard be paid to the duty of both the agent and the principal, among others, to act in good faith towards one another (Act on Commercial Representatives and Salesmen, sections 5, 8 and 9).
Registration of agreements
Are there laws requiring that distribution agreements or intellectual property licence agreements be registered with or approved by any government agency?
No. There is no requirement that the agreements as such should be registered with or approved by any authorities to be deemed valid or for whatever purpose. However, where either party to a licence of an IPR desires that the licence be recorded by the relevant registry, such non-mandatory recording is possible. Recording makes the licence effective against third parties, such as creditors.
In addition, a security interest by means of a pledge can generally be instituted by the recorded owner of the IPR. This is true for registered trademarks as well as patents, utility models, registered designs, layout designs and plant varieties. However, unregistered trademarks, trade names and copyrights cannot be used as security. A valid pledge of a right to a registered trademark requires a writ of pledge and entry into the register of trademarks. Execution can be levied on a trademark only if the pledge is entered into the register. Although as to the pledge of a patent right, there are no formal requirements inter partes for being regarded as binding in relation to third parties, the pledge needs to be entered into the register of patents. In these respects, one should note that there are some slight differences compared with other pledgeable IPRs.
To what extent are anti-bribery or anti-corruption laws applicable to relationships between suppliers and their distribution partners?
The anti-bribery and anti-corruption laws, from the most simple to the more refined, are, indeed, applicable to suppliers and their distribution partners. Pursuant to Chapter 30 of the 1889 Penal Code, there is a wide range of acts containing taking or offering of bribes being encompassed by the punishable offence of bribery in business. Moreover, there is a host of other wrongful acts and corruptive behaviour that are punishable and applicable to all conceivable arrangements concerning distribution of goods or services.
Prohibited and mandatory contractual provisions
Are there any other restrictions on provisions in distribution contracts or limitations on their enforceability? Are there any mandatory provisions? Are there any provisions that local law will deem included even if absent?
No, there are no other restrictions on provisions in distribution contracts or limitations on their enforceability. There are no mandatory provisions, save for the above-mentioned good faith, fair dealing and loyalty between the parties.
Governing law and choice of forum
Choice of law
Are there restrictions on the parties’ contractual choice of a country’s law to govern a distribution contract?
No. Under article 3 of the Rome I Regulation (EC) 593/2008, the parties to the contract may subject a distribution contract to the law of a foreign country, or may elect a foreign law to be applicable to a certain separable part of the contract. Nevertheless, regarding choice of a foreign law, whether accompanied by the choice of a foreign tribunal or not, such choice must not prejudice the application of domestic mandatory rules from which no derogation can be made, such as the rules of the law on consumer protection, product liability, labour and employment, personal data law, law of tenancy, law on restraints of competition, procedural rules as to IPRs or tax law.
Choice of forum
Are there restrictions on the parties’ contractual choice of courts or arbitration tribunals, whether within or outside your jurisdiction, to resolve contractual disputes?
Yes, there are restrictions, although they do not seem to affect agency or distributorship contracts. The restrictions seem to be limited to matters outside the scope of EC Regulation 2015/2012 and the rules conferring special jurisdiction to consumers under section 4 of the regulation as well as exclusive jurisdiction in certain matters under section 6 of the same regulation. Since prorogation of jurisdiction is provided for under article 25 of Regulation 2015/2012 to the effect that if the parties, regardless of their domicile, have agreed in the form prescribed that a court or the courts of a member state are to have jurisdiction to settle any disputes that have arisen or that may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that member state. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.
Similarly as a prorogation agreement is recognised, so is the purported derogation agreement, which is an agreement to the effect that a certain court is (or certain courts are) to be regarded as foreclosed (ie, excluded) jurisdiction.
Parties can contractually agree to arbitration of their disputes instead of resorting to the courts. Arbitrations can be seated abroad provided that the seat of the arbitration is a signatory to the New York Convention.
Dispute resolution procedures
What courts, procedures and remedies are available to suppliers and distribution partners to resolve disputes? Are foreign businesses restricted in their ability to make use of these courts and procedures? Can they expect fair treatment? To what extent can a litigant require disclosure of documents or testimony from an adverse party? What are the advantages and disadvantages to a foreign business of resolving disputes in your country’s courts?
The courts available to suppliers and distribution partners to resolve their disputes on contract performance and commercial transactions are in the first instance the ordinary district courts. In civil cases the proceedings start with the pretrial phase of the procedure, after which the case is adjourned to the main hearing. Alternatively, the case may be resolved already in the course of the partly written and partly oral pretrial procedure. Apart from the claims and merits of the case, the complexity and length of the procedure depend to a great deal on, first, the quality and quantity of evidence to be presented and, second, the fact that each party is heard regarding the claim, its grounds and whatever evidence there is.
Should the judgment or decision rendered, within about a year or two, be contrary to expectations, non-satisfaction and the intention to appeal is to be notified within a week and generally the appeal is to be accomplished within 30 days. The appeal procedure consists of written preparation and one or more hearings. The courts of appeal have to arrange an oral hearing if the evidence of the case has to be evaluated once more, or when a party so requests unless the appeal is, for example, clearly without merit.
The third and final instance is the Supreme Court, which has its seat in Helsinki. Its main task is to establish precedents, thus giving guidelines to the lower courts on the application of the law. The Supreme Court may grant a leave to appeal in cases in which a precedent is necessary for the correct application of the law, a serious error has been committed in the proceedings before a lower court or another special reason exists in law. Normally, the cases are decided on the basis of solely written material. The Supreme Court may, however, also conduct oral hearings and inspections.
Finally, the Market Court is the competent court as regards disputes on, inter alia, competition between firms and improper marketing. Redress is sought with the Supreme Court.
Foreign businesses are encouraged to use the local courts. A standing joke goes that foreign businesses can expect equally unfair treatment as anyone else.
The statute says that anyone who wishes to present evidence in advance for a case that is not yet pending shall apply for permission for this from a court of first instance. If his or her rights depend on the admission of the evidence and there is a danger that the evidence will be lost or that it will be difficult to present it later, and the presentation of the evidence is not for the purpose of obtaining information on an offence, permission shall be granted. If the rights of another person depend on the presentation of the evidence, he or she may, if necessary, be invited to appear in court for the hearing. His or her costs shall be covered by the applicant. In such cases no one may be required to appear as a witness or an expert witness in a court other than the court of first instance in the district of which he or she resides or is staying (Code of Judicial Procedure (AAD/1734), Chapter 17, section 10).
Once the case is pending, pretrial disclosure of documents (discovery) is implemented by the request of either party that the opposite party states whether he or she has in his or her possession written evidence or an object that may be relevant in the case, always provided such document or object be sufficiently identified by the requesting party (Code of Judicial Procedure (AAD/1734), Chapter 5, section 20, paragraph 2). When it can be assumed that a document is of significance as evidence in a case, the person in possession of the document can be ordered on pain of a fine to present it in court (Code of Judicial Procedure (AAD/1734), Chapter 17, sections 10 to 17).
One advantage of a foreign business resolving a dispute in the Finnish courts is the direct enforceability against a Finland-domiciled party, or one with property in this country. Another is that the court fees and dispatch costs are fairly low. In addition, as Swedish is formally a domestic language equal to Finnish, one more advantage is that should you wish to have your case tried completely in Swedish, you are entitled to expect your case to be equally thoroughly tried as if it were in the Finnish language. Certain matters, such as applications for injunctive relief, are often rendered timely, and effectively handled by able judges and service-minded court clerks. However, a serious drawback is the fact that since there is no statutory ceiling in respect of the prevailing party’s attorneys’ fees to be compensated by the defeated party, the risk of litigation tends to increase rapidly and uncontrollably.
Alternative dispute resolution
Will an agreement to mediate or arbitrate disputes be enforced in your jurisdiction? Are there any limitations on the terms of an agreement to arbitrate? What are the advantages and disadvantages for a foreign business of resolving disputes by arbitration in a dispute with a business partner in your country?
Yes, such an agreement is enforceable, although whatever decisions mediation may bring forth are, in contrast to arbitral awards rendered in a New York Convention country, not enforceable. The award, however, needs to be recognised. This is dependent on whether the arbitration agreement on which the award has been founded fulfils the formal requirements and it must not be contrary to Finnish public policy. The party against whom enforcement of an arbitral award is sought shall, in general, be heard. Accordingly, should the party against whom enforcement is sought be able to demonstrate that one or more of the aforementioned obstacles exists, the award is not to be enforced.
An arbitration agreement concluded under Finnish law needs to be made in writing. This requirement is fulfilled if the agreement is contained in a document signed by the parties or in an exchange of letters between the parties. The written form requirement is also regarded as fulfilled where the parties, by exchanging emails, have agreed that a dispute shall be decided by one or more arbitrators. Any stipulations concerning the arbitration tribunal, the location of the arbitration or the language of the arbitration are matters that may affect the assessment to be conducted whether the rule of the Contracts Act admitting the competent dispute resolving body, be it a court or an arbitration tribunal, to adjust a contract provision found unconscionable should be applicable. See question 11.
The main advantages for a foreign business resolving a dispute with a business partner by arbitration in Finland are avoiding the quagmire of what, at worst, may evolve from any ordinary court, the fact the hearings are not public, the finality of the award and, lastly, the frequent ambitiousness and dedication of the arbitrator resulting in elaborated and well-founded awards, which in turn lead to continued demand for the fairly well-paid assignment of acting as arbitrator. The disadvantages are the expenses for both counsel, compensating the arbitrator or arbitrators for their work and expenses and, for the defeated party, the lack of any way of seeking redress.
Update and trends
Updates and trends
Where Finnish law is applied or Finnish jurisdiction concerned, the Supreme Court’s 3 May 2018 judgment in the Meira case (KKO 2018:37; dissent 3 - 2) establishes a caveat for any distributor, whether domestic or foreign, where Finnish law is applied or jurisdiction is concerned. In a nutshell, the outcome of the case was that the supplier of certain products furnished with the brands of the buyer and who, therefore, was unable to dispense of his stock prior to the expiration of the contract, was awarded no damages or compensation. What is baffling is that the Court recognised that European Private Law (Principles, definitions and Model Rules of European Private Law, DCFR) prompts the party whose products have been brought onto the market to repurchase, at a reasonable price, the remaining stock held by the party who may be unable to resell such stock so as to avoid the latter suffering unreasonable losses because of termination of contract, but it still decided to the contrary. Since the same may well be applied to any distributor who has purchased in advance a stock it may be unable to get rid of during the brief period of termination either agreed or granted by case law, there is a factual risk any distributor whose case is entertained by a Finnish court or arbitral tribunal, or under Finnish law may face a similar treatment as the supplier in the Meira case.