Finland Broadens The Scope Of CFC Under The Amended CFC Rules

; posted on
November 6th, 2018

Finland submitted the amendment of controlled foreign company (CFC) rules to the Finnish legislation. The proposal, which amends the CFC Law (Laki ulkomaisten väliyhteisöjen osakkaiden verotuksesta), will apply from 1 January 2019.

Proposed Changes to the CFC Rules

The purpose of the CFC rules is to prevent the transfer of taxable income to low-tax countries. Therefore, to strengthen the purpose of the rules, the Finnish government broadened the definition of CFC under the proposed CFC rules. The CFC is created if a Finnish taxpayer holds itself, or together with related parties, a direct or indirect participation of at least 25% and the actual corporate tax paid by the foreign entity or permanent establishment is less than 3/5 of the Finnish corporate tax rate.

The CFC rules will apply to a natural person who holds interest in CFCs and to a person subject to limited tax liability in Finland to the extent the holding in a foreign CFC relates to a permanent establishment therein.

Amended Exemption for Considering an Entity to Be a CFC

Under the proposed rules, a foreign CFC company is exempted from CFC rules if the entity carries on a substantive economic activity supported by staff, equipment, assets, and premises. For CFCs located in a non-EEA state, it is also required that Finland and the country in which the CFC is located have agreed on adequate exchange of information and that the CFC is engaged with production activity. The exclusion does not apply to CFCs situated in a jurisdiction included in the EU list of non-cooperative jurisdictions for tax purposes.

By proposing the new exemption rules, consequently, the Finnish Ministry of Finance abolished the use of a CFC blacklist and the current exemptions for certain industries and EEA and tax treaty countries.


Compared to the current CFC rules, the proposed rules have a lower threshold (lowered from 50% to 25%) and have a more rigorous requirement to satisfy the exemption provision for the non-EEA state. As a result, the changes may bring additional entities within the scope of the CFC provisions.

Source: Finnish Government

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