KHO: two-tier buyout vehicle counts as venture-capital investor

The Supreme Administrative Court (korkein hallinto-oikeus) has held in KHO:2026:78 that B Oy, the lower company in a two-tier private-equity acquisition structure, counts as a company carrying on pääomasijoitustoiminta, venture-capital investment activity, within the meaning of 6 §:n 1 momentin 1 kohta of the Act on the Taxation of Business Income (laki elinkeinotulon verottamisesta)Finlex. The Tax Administration's advance ruling for 2024 and 2025Finlex and the Helsinki Administrative Court's decision of 8 August 2025Finlex were quashed, and the case was returned to the Tax Administration for a ruling on the second advance-ruling questionFinlex.

B Oy was founded in December 2022 together with A Oy to carry out the acquisition of the C group, its financing arrangement, and the administration and development of the acquired company. The two-tier structure had been required in particular to obtain the external bank financing needed for the share purchase. Fund E Ky, administered by D Oy and belonging to the F group that carries on pääomasijoitustoiminta, owns about 67 per cent of A Oy, which owns all of B Oy's shares; B Oy in turn owns all of C Holding Oy, a pure holding company above the operating companies in food logistics. B Oy took a bank loan to finance the purchase of the C Holding Oy shares, employs the group's top management including the chief executive, finance and sales directors, and supplies management services to the group companies.

The Tax Administration had answered the first advance-ruling question in the negative on 20 December 2024Finlex, declining to address the second questionFinlex on whether a liquidation loss (purkutappio) on a winding-up of C Holding Oy would be deductibleFinlex. The administrative court agreed, treating B Oy as a holding company performing typical parent functions whose own activity showed no venture-capital hallmarks, and as the target rather than an indirect investor, noting also the planned winding-up of C Holding Oy into B Oy and the intention for B Oy to continue operating business itself.

The Supreme Administrative Court weighed the matter differently. It took into account the reasons for B Oy's formation, the fact that C Holding Oy had not been wound up immediately after the share acquisition, and B Oy's position within the whole of the venture-capital activity carried on by D Oy, and concluded that B Oy carries on pääomasijoitustoimintaFinlex. The court expressly aligned itself with KHO 2010:12 and KHO 2021:135 on single- and two-tier acquisition structures, and distinguished KHO 2009:64, where the target had been wound up immediately and the acquirer continued its business. Neither the shareholders' agreement, given the mentioned possibility of listing various group companies and the evidence that exit could take many forms besides selling A Oy, nor the fact that the group's top management is employed by B Oy, changed the assessment.

The practical consequence is the venture-capital tax regime: share-transfer prices of fixed-asset shares (käyttöomaisuusosakkeet) received by such a company are taxable income rather than exempt under 6 § and 6 b §Vero, while acquisition costs are deductibleVero, and a liquidation loss on a subsidiary's winding-up can be deductible from business income under 51 d §:n 2 momenttiVero. Because the court reached the opposite conclusion on the first questionFinlex, it did not decide the deductibility question itselfFinlex but returned it to the Tax Administration for a rulingFinlex.

Legal basis: laki elinkeinotulon verottamisesta 6 §:n 1 momentin 1 kohta, as applied in KHO:2026:78Finlex; see KHO 2010:12 and KHO 2021:135, compare KHO 2009:64.