KHO treats capital loan as debt in executive share-benefit valuation

Finland’s Supreme Administrative Court has held that a qualifying capital loan must be treated as debt when determining a subsidiary’s net asset value for the withholding-tax question in an executive share transfer. In KHO:2026:67, the court rejected the Tax Recipients’ Legal Services Unit’s appeal and left intact the ruling that the proposed transfer would create no wage benefit requiring withholdingFinlex.

Parent company A Oy planned to transfer 1,000 shares in subsidiary B Oy to a holding company wholly owned by A Oy’s chief executive. The shares represented 10% of B Oy and would be sold for €1 eachFinlex. The arrangement included transfer restrictions and an obligation to give up the shareholding if the chief executive’s appointment ended, with compensation depending on the length of service and reason for departure.

A Oy had lent B Oy €2 million under terms meeting the capital-loan requirements of OsakeyhtiölakiFinlex. B Oy recorded the loan in equity, but remained obliged to repay principal and pay interest to A Oy. Treating the loan as debt made the subsidiary’s net asset value negative; its earnings-based value was also zero. The Tax Administration had instead refused to deduct the loan as debt, valuing a share at €64.13 and the wage benefit at €63.13 per share.

The court distinguished the special company-law calculation used to determine whether equity is negative and the board must notify the register of lost share capital. A statutory capital loan counts as equity for that test. Otherwise, the court said, it is debt owed by the recipient company rather than equity within chapter 8, section 1Finlex. Whether the company recorded it as equity or liabilities did not determine the result in this valuation.

The qualifying loan terms matter. Under chapter 12, section 1, principal and interest rank behind all other debts in liquidation and bankruptcy. Outside those situations, repayment and interest are permitted only to the extent that unrestricted equity plus all capital loans, at payment, exceed the balance-sheet loss in the financial statements to be adopted for the latest completed financial year or in more recent financial statements. Neither the company nor its subsidiary may provide security for principal or interestFinlex.

For the withholding assessment at issue, the €2 million loan therefore did not count towards the subsidiary’s net asset value as an equity item. The administrative court’s conclusion that the chief executive received no wage benefit from the described €1-per-share acquisition remained unchanged.

The relevant provisions are Ennakkoperintälaki, section 13(1)(1); Tuloverolaki, sections 29(1) and 61(2); and Osakeyhtiölaki, chapter 8, sections 1–2, chapter 12, section 1, and chapter 20, section 23.