September 2021
Inheritance from the United States – new tax practice on the calculation of sales profit
On 6 September 2021, Finland’s Supreme Administrative Court (“SAC”) issued a judgement (KHO:2021:120) that provided long-awaited clarity to the calculation of sales profit when property inherited in the United States is sold by a Finnish tax resident individual. In the case, the Finnish tax resident beneficiary had received US listed shares as an inheritance from a decedent who, at the time of death, was a citizen of the United States and a resident of California. The beneficiary was entitled to a credit that reduced the Federal Estate (Inheritance) Tax and, thus, no Federal Estate Tax was due and no tax return was filed. Neither was the estate subject to a Californian State Tax.
In accordance with the bilateral inheritance tax treaty concluded between Finland and the United States, Finland exempts some assets, including the shares of publicly listed US companies located in the United States, from Finnish inheritance tax. The beneficiary had filed with the Finnish Tax Administration an inheritance tax declaration in which, among others, the US shares were declared. The Tax Administration confirmed that no inheritance tax would be imposed on the beneficiary of the shares since, based on the tax treaty, they were exempt from tax in Finland.
The beneficiary intended to sell the shares and applied for an advance ruling from the Central Tax Board in order to receive certainty on the tax consequences of the sales in Finland.
In Finland, sales profit is calculated by deducting from the sales price both the acquisition price and the costs related to the acquisition and sales. When a private individual receives property as an inheritance, the “acquisition cost” is the value confirmed in the inheritance taxation. Alternatively, the sales profit may be calculated by using the so-called “deemed acquisition price” which is 40% of the sales price if the property has been owned for at least 10 years and 20% of the sales price if the property has been owned for less than 10 years.
The Central Tax Board issued a decision where the acquisition value of the shares in this case was EUR 0 and, consequently, only the deemed acquisition price could be applied. The beneficiary appealed this decision to the SAC and filed a claim that the actual market value of the shares on the acquisition date should be applied when calculating the sales profit. The SAC accepted the claim. In its reasoning the SAC concluded that the beneficiary had filed an inheritance tax declaration and, even though the Tax Administration had not imposed any inheritance tax, this did not imply that the shares were void of any value on the date of receipt.
Specific tax rules apply to the proceeds received from the sales of assets gained, e.g., as an inheritance, or as a gift, or based on the distribution of property after a divorce. If these cases also include cross-border aspects, the tax implications should always be carefully reviewed.
In accordance with the bilateral inheritance tax treaty concluded between Finland and the United States, Finland exempts some assets, including the shares of publicly listed US companies located in the United States, from Finnish inheritance tax. The beneficiary had filed with the Finnish Tax Administration an inheritance tax declaration in which, among others, the US shares were declared. The Tax Administration confirmed that no inheritance tax would be imposed on the beneficiary of the shares since, based on the tax treaty, they were exempt from tax in Finland.
The beneficiary intended to sell the shares and applied for an advance ruling from the Central Tax Board in order to receive certainty on the tax consequences of the sales in Finland.
In Finland, sales profit is calculated by deducting from the sales price both the acquisition price and the costs related to the acquisition and sales. When a private individual receives property as an inheritance, the “acquisition cost” is the value confirmed in the inheritance taxation. Alternatively, the sales profit may be calculated by using the so-called “deemed acquisition price” which is 40% of the sales price if the property has been owned for at least 10 years and 20% of the sales price if the property has been owned for less than 10 years.
The Central Tax Board issued a decision where the acquisition value of the shares in this case was EUR 0 and, consequently, only the deemed acquisition price could be applied. The beneficiary appealed this decision to the SAC and filed a claim that the actual market value of the shares on the acquisition date should be applied when calculating the sales profit. The SAC accepted the claim. In its reasoning the SAC concluded that the beneficiary had filed an inheritance tax declaration and, even though the Tax Administration had not imposed any inheritance tax, this did not imply that the shares were void of any value on the date of receipt.
Specific tax rules apply to the proceeds received from the sales of assets gained, e.g., as an inheritance, or as a gift, or based on the distribution of property after a divorce. If these cases also include cross-border aspects, the tax implications should always be carefully reviewed.
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The information in this site has been prepared for general informational purposes only and it should not be used as a substitute for consultation with a professional tax, legal or other competent advisor. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, Effektiivi Oy is not responsible for any errors or omissions, or for the results obtained from the use of this information.
The information in this site has been prepared for general informational purposes only and it should not be used as a substitute for consultation with a professional tax, legal or other competent advisor. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, Effektiivi Oy is not responsible for any errors or omissions, or for the results obtained from the use of this information.
