Finnish deal costs must be allocated by benefit before deduction

Paying an adviser’s invoice does not establish that all the cost belongs to the acquiring company for Finnish income tax purposes. Vero’s revised guidance on share acquisition and disposal fees illustrates how companies must identify whose income-earning activity a service benefits before deciding whether to capitalise or deduct the expenseVero. The revision adds worked examplesVero and clarifies the presentation of existing rulesVero.

Acquisition advice may benefit both the buyer and its investors, particularly in private-equity transactions. Due diligence, valuation, market research and transaction-management services therefore require an assessment of their actual content and connection to the company’s own activity. Only the portion serving the company’s own income acquisition or preservation can be treated as its expense. Within a group, costs benefiting another group company must be recharged to that company; without recharging, the paying company cannot deduct those costs under the general business-expense ruleVero.Vero

In the first example, shares cost €300,000 and advisory fees total €20,000. The buyer demonstrates that €6,000 relates to its own activity. Of the remaining €14,000, which also benefits other parties, the evidence attributes 90% to the buyer. The resulting share acquisition cost is €318,600: the price plus €6,000 and €12,600.Vero The 90% allocation is the outcome of the example’s evidence, not a general allocation percentage.

Fees directly connected with acquiring particular shares generally form part of their acquisition cost unless reliable evidence supports different treatment.Vero General market studies are usually annual expenses, and costs more closely linked to arranging acquisition finance may also be deducted annuallyVeroVero. The financing connection must be demonstrated.Vero Vero’s second example has a €200,000 purchase price and €20,000 in fees, including €3,000 shown to relate to financing. The €3,000 is deducted in the acquisition yearVero, while €17,000 is capitalisedVero, producing a €217,000 acquisition costVero.

For a tax-exempt disposal, advisory sale costs are deductible only to the extent they exceed the gross tax-exempt sale price.Vero A loss on the shares does not by itself make those fees deductible.Vero The third example assumes tax-exempt proceeds of €10,000 and a non-deductible €100,000 acquisition cost. The selling expenses in this example are €15,000. Only €5,000 of those selling expenses is deductible.Vero This is a separate calculation from the non-deductible acquisition cost.Vero

The legal basis is Laki elinkeinotulon verottamisesta (360/1968), sections 7, 14, 16(2) and 22Vero, with the financing and disposal distinctions illustrated by KHO:2013:68 and KHO:2012:129Vero.