January 2018
Economic employer in Finland - new tax practise
Many countries have been applying a so-called economic employer approach in the taxation of assignees and business travellers. The Finnish Tax Administration has instead generally applied a concept of a legal employer in the context of assignees' taxation. As the result, the employee’s salary paid for the work in Finland is not subject to tax here under the so-called 183-day principle provided the employee continues to have an employment agreement with the home country employer that also pays his/her salary during the temporary work in Finland. In practise, this has meant that Finland does not usually tax employees working in Finland for a short period of time if the employer does not have any presence (a permanent establishment) in Finland. The exception is hired-out employees. Several tax treaties that Finland has concluded, e.g. with the Baltic and Nordic countries, allow Finland to tax hired-out personnel from the first day of employment in Finland.
In the recently published decision by the Administrative Court of Helsinki a so called economic employer concept was however applied for the first time. The decision was issued on January 16, 2018.
In the decision of the Administrative Court, a country manager had an employment agreement with a UK limited company which also had paid the employee’s salary. The salary costs had been charged to a branch of a Danish A/S located in Finland. The Administrative Court referred to the economic employer concept when determining which entity is the employer under Article 16.2 of the tax treaty between Finland and the UK. It seems that the Administrative Court made the decision based on cost allocation to the branch and the fact that the work would have been performed mainly on the account of the branch. Therefore, Finland would have had the right to tax the salary income. In practise no tax was imposed for the applicable tax years since the tax payer had relied on the tax authorities’ guidelines and former tax practise.
It should be noted that this decision was by a 2-1 vote. It was also applied in specific circumstances and, therefore, its application to other inbound assignments should be reviewed an a case-by-case basis. However, the decision indicates that in future the companies should more carefully investigate the potential tax liabilities of assignees and business travellers to avoid unplanned tax consequences in Finland.
In the recently published decision by the Administrative Court of Helsinki a so called economic employer concept was however applied for the first time. The decision was issued on January 16, 2018.
In the decision of the Administrative Court, a country manager had an employment agreement with a UK limited company which also had paid the employee’s salary. The salary costs had been charged to a branch of a Danish A/S located in Finland. The Administrative Court referred to the economic employer concept when determining which entity is the employer under Article 16.2 of the tax treaty between Finland and the UK. It seems that the Administrative Court made the decision based on cost allocation to the branch and the fact that the work would have been performed mainly on the account of the branch. Therefore, Finland would have had the right to tax the salary income. In practise no tax was imposed for the applicable tax years since the tax payer had relied on the tax authorities’ guidelines and former tax practise.
It should be noted that this decision was by a 2-1 vote. It was also applied in specific circumstances and, therefore, its application to other inbound assignments should be reviewed an a case-by-case basis. However, the decision indicates that in future the companies should more carefully investigate the potential tax liabilities of assignees and business travellers to avoid unplanned tax consequences in Finland.
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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.
