KHO: foreign-company loans count as taxable shareholder loans

Shareholder loans drawn from a foreign company that closely resembles a Finnish osakeyhtiö fall within the shareholder-loan rule of section 53 aFinlex of the Income Tax Act (tuloverolaki 1535/1992)Finlex. The Supreme Administrative Court (KHO:2026:83) so held, overturning the Helsinki Administrative CourtFinlex and reinstating the taxation of two loans totalling nearly one million euros as the owner's capital incomeFinlex.

The facts were undisputed. B, generally liable to tax in Finland, owned the entire share capital of D B.V., a company registered in the NetherlandsFinlex, in 2020 and 2021Finlex. In 2020 B drew EUR 448,059.23Finlex that remained unpaid at year-end on 31 December 2020Finlex; in 2021 the figure was EUR 522,355.53Finlex, likewise outstanding at year-endFinlex. The Tax Administration added the 2020 loan to B's capital income by rectificationFinlex of 24 February 2022, and the 2021 assessment taxed the declared loan. The rectification board rejected B's claim on 7 February 2024, noting that the Finland–Netherlands tax treaty does not bar Finland from taxing the loanFinlex and that section 53 a is not confined to domestic-company loansFinlex.

The Helsinki Administrative Court annulled the assessmentsFinlex, reading section 53 a — which taxes, as capital income, the year-end outstanding amount of a money loan from a limited companyFinlex where the borrower and family together own at least 10 per cent of the shares or votesFinlex — as an income-extending special provision that, under the constitutional legality principle, must be read narrowly. Since the government proposal (HE 28/1998 vp) never addressed foreign lendersFinlex, the court held the rule covers only domestic-company loansFinlex, and remitted the case for examination as possible disguised dividend insteadFinlex.

The Supreme Administrative Court reversed.Finlex Section 53 a defines no domestic-only companyFinlex: the Income Tax Act has no single consistent 'osakeyhtiö' definition excluding foreign companiesFinlex — a foreign company can come within section 3(7) as a comparable entityFinlex — and the later section 66 a expressly contemplates non-Finnish companiesFinlex. The preparatory works are silent on foreign lendersFinlex, but business is ever more international, and excluding foreign-company loans would now disrupt the tax system far more than when the act passedFinlex; extension is not contrary to the rule's purpose of blocking tax planning that draws funds from a company with no immediate tax consequencesFinlex. The Dutch besloten vennootschap closely resembles a Finnish osakeyhtiöFinlex — undisputed — so the rule applies. The treaty analysis was common ground: the loan is not a dividend under Article 10(7)Finlex but other income under Article 21(1)Finlex, taxable only in FinlandFinlex. The assessments were reinstatedFinlex, B's appeal lapsed, and no costs were awarded.

The 3–2 split concerned reasoning only: the dissent would have reached the same result through treaty-first logic — the loan as Article 21 other income taxable in Finland, with section 53 a supplying the exercised domestic taxing power — rather than the majority's wording-and-purpose route.

Legal basis: tuloverolaki (1535/1992)Finlex, sections 9(1)(1), 53 a and 3(7)Finlex; Finland–Netherlands tax treaty (83-84/1997)Finlex, Articles 10(7) and 21(1)Finlex.