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13.3.3. Documentation Requirements

On 23 November 2016, Finland approved the new law regarding transfer pricing documentation. The new law, which is in line with the BEPS Actions 8-10 and 13, is a complete refresh of the old transfer pricing documentation law. On 26 January 2018, the Finnish tax administration published updated guidelines on transfer pricing documentation requirements, which replace the previous guidelines issued in 2007. The guidelines reflect the changes in the documentation requirements introduced in 2016.

Disclosure Requirements

All companies must disclose whether they are obliged to prepare transfer pricing documentation. Entities that are required to prepare transfer pricing documentation under Section 14a of the Act are required to file a specific tax form detailing the following:

  • Main functions of the entity;
  • Profitability of the entity and of the group of which it is a member; and
  • Related party transaction volumes during the tax year by transaction category.

Taxpayers are required to disclose information of the related party transactions as an annexure to the corporate income tax return, within 4 months from the end of the accounting period.

Standard Documentation

Taxpayers are required to maintain contemporaneous documentation in relation to their transactions with related parties. Effective 1 January 2017, Finland introduced the three-tier documentation requirements developed as part of BEPS Action 13, including a Master file, Local file, and Country-by-Country (CbC) reporting requirements.

The transfer pricing documentation is required for transactions between domestic companies and foreign related parties and between a foreign company and its permanent establishment in Finland, but is not required for domestic transactions or transactions between a domestic company and its foreign permanent establishment. Documentation should be prepared annually in a timely and accurate manner, although there is no statutory deadline for preparation.

SMEs are relieved from the documentation requirements, provided that the SME:

  • Has less than 250 employees;
  • Has turnover not exceeding EUR 50 million or balance sheet total not exceeding EUR 43 million (one may be exceeded but not both); and
  • Meets the characteristics of SMEs as referred to in EU Commission Recommendation 2003/361/EC.

For the purposes of transfer pricing documentation, two parties are considered related where one has control over the other or a third party, alone or jointly with its related parties, has control over both parties. ‘Control’ includes:

  • Majority voting rights based on ownership, membership, articles of association, company agreement or comparable rules, or any other agreement; or
  • The right to appoint or dismiss a majority of the members from the board of directors of a company or a comparable institution/body based on the same factors as the majority of the voting rights described above; or
  • The exercise of actual control through other means.

Documentation is required to be submitted within 60 days of the tax authority's request, but no earlier than six months after the end of the financial year for which the documentation is requested. Additional documentation may be requested and must be submitted within 90 days of the tax authority's request. Documentation must be retained for at least six years after the end of the respective year, although longer retention is recommended since the documentation may be relevant to a transfer pricing issue in another country.

Master File

The Master file is required to be prepared by the taxpayer if the total value of related party transactions during the year exceeds EUR 500,000.

The content of the Master file includes:

  • Organizational structure;
  • Description of the group’s business;
  • Description of the activities related to intangible assets;
  • Description of group financing;
  • Group’s consolidated financial statements for the fiscal year or equivalent if available; and
  • Information on unilateral APAs and other relevant cross-border tax rulings.

Local File

The Local file must be prepared by taxpayers undertaking related party transactions, except in case of SME’s that meet certain conditions (see above). Where the total value of related party transactions does not exceed EUR 500,000, detailed documentation including the functional analysis, comparability analysis and description of the transfer pricing method is not required.

The content of the Local file includes:

  • Description of the organizational and management structure;
  • Detailed description of the business operations and strategy;
  • Description of the relationships with related parties transacted with and those that directly or indirectly affect the pricing of transactions;
  • Details of related party transactions and transactions between the company and its PE;
  • Functional analysis of related party transactions between the company and its PE;
  • Comparability analysis and available comparable data;
  • Description of the selected transfer pricing method and its application;
  • Financial statements or equivalent information for the year; and
  • Copies of the unilateral, bilateral or multilateral APAs affecting the related party transactions and other relevant cross-border tax rulings.

Country-by-Country (CbC) Reporting

Finland introduced Country-by-Country (CbC) reporting requirements under domestic law substantially in line with EU law and the guidance contained in Action 13 of the OECD BEPS Report. The requirements apply for fiscal years beginning on or after 1 January 2016 for MNEs meeting an annual consolidated revenue threshold of EUR 750 million or more during the fiscal year immediately preceding the reporting fiscal year.

The requirement to submit the CbC report primarily applies to ultimate parent entities resident in Finland. Under a secondary filing requirement, resident constituent (non-UPE) entities are required to file locally in Finland if:

  • The ultimate parent is not required to submit a CbC report in its jurisdiction of residence;
  • The ultimate parent is resident in a jurisdiction that does not have an agreement for the exchange of CbC reports with Finland in force by the due date of the CbC report; or
  • An agreement is in place, but there has been a systemic failure to exchange and notification of this failure has been provided by the Finnish Tax Administration to the constituent entity resident in Finland.

A local non-parent constituent entity will not be required to submit a CbC report in Finland as mentioned above, if a surrogate parent entity (SPE) is designated in another jurisdiction. The following conditions are required to be satisfied:

  • The jurisdiction of tax residence of the SPE requires the filing of CbC Reports conforming to the requirements mentioned in the Finland’s tax regulations;
  • The jurisdiction of tax residence of the SPE has a Qualifying Competent Authority Agreement in effect to which Finland is a party;
  • The jurisdiction of tax residence of the SPE has not notified the Finland’s tax authority of a systemic failure;
  • The SPE has notified in its jurisdiction of tax residence that it is designated as the SPE on behalf of the MNE Group; and
  • A notification has been provided by the Finland’s constituent entity to the Finland’s tax authority providing details of the SPE.

Notification of the reporting entity (in all cases) must be submitted electronically by the last day of the reporting fiscal year, using either:

  • An online form submitted via the Suomi.fi service; or
  • A data file via the llmoitin.fi service.

The CbC report must be submitted electronically within 12 months following the end of the reporting fiscal year using either:

  • An online form submitted via the Suomi.fi service; or
  • An XML file via the llmoitin.fi service

Where the CbC report is required to be filed locally in Finland, the contents of the CbC report include the following for each jurisdiction:

  • Information about each of the entities that make up the MNE group along with nature of activities, the data sources used and the currency;
  • Details of income earned by each entity of the MNE group;
  • Profit for the year before income tax;
  • Income tax accrued, withholding taxes and income tax paid in the year in the year;
  • Accounting value of equity or share capital;
  • Accumulated profits;
  • Number of employees; and
  • Tangible assets other than cash or other monetary assets.

Language of Documentation

The documentation is required to be submitted in Finnish, Swedish or English with a translated copy to be submitted in Finnish or Swedish for documentation prepared in English.

Penalties

Failure to comply with the transfer pricing documentation requirements may attract penalties ranging up to EU 25,000 on:

  • Failure to submit documentation by the deadline;
  • Submitting documentation that is substantially incomplete or incorrect, or failure to provide further clarification during examination;
  • Failure to submit, or incomplete or incorrect filing of the CbC report; and
  • Failure to submit any documentation during examination.

In addition, in case of reassessment, a penalty of up to 10% (30% until 2017) of adjusted income may be imposed, according to the regulations on general tax penalties.

Under current law, the tax authorities are allowed to adjust the transfer prices applied but not to re-characterize the transaction under examination. This has been confirmed by a July 2014 decision issued by the Supreme Administrative Court in a case where the tax authorities recharacterized a hybrid loan as equity.