At the beginning of the summer, the Court of Justice of the European Union (CJEU) delivered a significant new judgment in Nova Iberomoldes (C-837/24). The Court held that Portugal may not levy municipal real estate transfer tax (IMT) when shares in real estate holding companies are transferred to another company as part of a corporate restructuring. The CJEU found that the Portuguese tax treatment was contrary to the EU Directive concerning indirect taxes on the raising of capital (the so-called Capital Duties Directive 2008/7/EC).

The ruling may also have significant implications in Finland and could mean that, in the future, transfer tax will no longer be payable when acquiring shares in another company through a share-for-share exchange, that is, where the consideration consists of shares issued by the acquiring company rather than cash. This may also be relevant to your company if you have carried out a share-for-share exchange in recent years.

Because the CJEU concluded that levying transfer tax in certain circumstances is contrary to the Capital Duties Directive, such taxation is not permitted even if national legislation provides otherwise. Consequently, taxpayers in Finland may also be entitled under EU law to seek refunds of transfer taxes previously paid in connection with share-for-share exchanges.

In Finland, share-for-share exchanges are generally tax-neutral for income tax purposes. However, for transfer tax purposes they have traditionally been treated differently.

According to the Finnish Tax Administration’s guidance, the main rule under the Transfer Tax Act, namely that transfers are taxable, also applies where securities are contributed to a limited liability company in exchange for shares or other equity interests. In practice, this has meant that in a share-for-share exchange, the acquiring company has been liable to pay transfer tax on the acquisition of the target company’s shares, even though the arrangement is tax-neutral from an income tax perspective.

Under the Finnish Tax Administration’s general guidance, the transfer tax on business shares is 1.5% of the purchase price or the value of other consideration. This makes the Nova Iberomoldes ruling particularly significant in Finland. If a share-for-share exchange is regarded as a restructuring transaction protected under the Capital Duties Directive, Finland’s current practice of imposing transfer tax on the acquiring company may need to be reassessed in light of the primacy of EU law and the Directive’s prohibition on indirect taxation.

Thousands of share-for-share exchanges have been carried out in recent years. If the transfer taxes levied on these transactions are found to be contrary to EU law, it should, in our view, be possible to obtain refunds. As transfer tax amounts to 1.5% of the purchase price or other consideration, the refundable amount could be substantial even in a single transaction.

The CJEU’s judgment raises a legitimate question as to whether Finland’s transfer tax rules on share-for-share exchanges are compatible with EU law. The issue has not yet been resolved in Finland, and neither the Finnish Tax Administration nor the courts have taken a position on it. Nevertheless, there are strong grounds for challenging the current interpretation.

As the case concerns a directive that, in light of the Nova Iberomoldes judgment, may have been implemented imperfectly in Finland and with which national legislation may be inconsistent, companies should be able to rely directly on the Directive going forward.

Accordingly, it should be possible, notwithstanding national legislation, to refuse payment of transfer tax in certain share-for-share exchange situations by relying directly on the Directive, and to seek refunds of transfer tax that has been unlawfully levied and paid. Share-for-share exchanges may therefore become a more attractive restructuring tool, as they could potentially be carried out without transfer tax costs.

If Finnish legislation is ultimately found to be incompatible with EU law, the Finnish state should be obliged to refund transfer taxes that were wrongly collected. There are potentially thousands of share-for-share exchanges that could be affected.

Historically, refund processes involving taxes later found to be contrary to EU law, such as car tax and fairway dues, have often been lengthy and have involved administrative appeals and tax disputes, including issues relating to limitation periods. As a general rule, refunds have not been issued proactively by the authorities, and unfortunately the same may be expected regarding transfer taxes paid in connection with share-for-share exchanges.

The first applications concerning the transfer tax exemption of share-for-share exchanges have already been submitted. Since tax reassessment claims are subject to statutory deadlines, it is advisable to review your situation without delay to ensure that any right to a refund does not expire.

1. Claiming a refund of transfer tax paid in a share-for-share exchange

Svalner Atlas has extensive experience and deep expertise in handling tax disputes. We can assess your situation and determine whether you may have grounds to claim a refund of transfer tax already paid.

As a starting point, refunds should be available at least for share-for-share exchanges completed on or after 1 January 2023. Refunds may also be possible for transactions carried out before that date.

If your company has completed a share-for-share exchange, contact us and we will assess your situation free of charge.

2. Assessing the transfer tax exemption of planned share-for-share exchanges

We can evaluate whether a planned share-for-share exchange is structured in a manner that should qualify for exemption from transfer tax.

3. Planning future corporate restructurings

We can help determine the most cost-efficient and tax-efficient way to implement a planned restructuring, whether it is a purely internal reorganization or a transaction involving external parties, such as a business acquisition.

If share-for-share exchanges become exempt from transfer tax in the future, there will be even more situations where they may be the optimal way to reshape a corporate structure.

The Nova Iberomoldes judgment creates a tangible opportunity for companies, but only for those that act in time. Contact us to discuss whether your company may be entitled to a refund of transfer tax.

The case concerned a Portuguese group restructuring in which a company’s share capital was funded through a contribution in kind consisting of shares in companies that owned real estate. In return, the acquiring company issued its own shares.

The Portuguese tax authorities considered the transaction equivalent to a transfer of real estate for consideration because control over the real estate holding companies changed hands. On that basis, they levied municipal real estate transfer tax (IMT).

Nova Iberomoldes challenged the tax, arguing that the transaction constituted a capital contribution and corporate restructuring protected by the EU Capital Duties Directive and therefore could not be subject to such an indirect tax.

The key question before the CJEU was whether a Member State could, through national tax legislation, circumvent the Directive’s prohibition on taxing capital raising and qualifying restructuring transactions.

The core of the judgment is that a share-for-share exchange falls within the scope of the restructuring operations protected by the Capital Duties Directive. Article 5 of the Directive prohibits Member States from imposing any indirect tax on transactions connected with capital raising or qualifying restructuring operations. Although Article 6 contains exceptions allowing Member States to tax, for example, transfers of securities or immovable property in certain circumstances, those exceptions must be interpreted narrowly.

According to the CJEU, the exception does not extend to situations where shares change ownership as a consequence of exercising the Directive-protected right to carry out a restructuring without indirect tax burdens. Consequently, the transaction in Nova Iberomoldes could not be subject to an indirect transfer tax such as IMT, even though the arrangement resulted in a transfer of control over a real estate holding company.