The recent ruling KVL:2026/8 by the Central Tax Board provides important guidance on when Finland may tax capital gains from the sale of shares in a non-resident company in situations where Finnish real estate ownership is structured indirectly through multiple corporate layers.

The decision clearly demonstrates that, in assessing taxing rights, it is not merely the formal ownership structure that is decisive, but rather the company’s actual purpose and the composition of its assets.

In the case, a foreign company intended to sell the shares of Finnish holding company B. The holding company’s assets consisted mainly of shares in real estate companies, one of which owned a rental property located in Finland. The other real estate companies had no operations or significant assets.

The Central Tax Board (KVL) concluded that B qualified as a real estate company under Section 10, subsection 10 a of the Income Tax Act, because indirectly more than 50% of its assets consisted of real estate located in Finland.

Over 75% of the holding company’s assets were deemed to consist of real estate located in Finland, and the company’s principal purpose was interpreted as owning real estate despite the corporate structure. This meant that Finland had the right to tax the income under the Nordic tax treaty, even though the capital gain from the shares would normally be taxable in the seller’s home country under the treaty.

The provisions of the Nordic tax treaty concerning real estate ownership were central to the KVL decision. KVL determined that B’s principal purpose was to own real estate, even though B did not directly hold any real property. Since B’s assets were concentrated in Finland, Finland was deemed to have the right to tax the capital gain from the shares.

The decision is not yet legally binding, but it provides significant guidance for future tax practice.

1. Indirect ownership can trigger taxation in Finland
   The decision reinforces the interpretation that taxing rights under a tax treaty cannot be circumvented by placing Finnish real estate just “one layer down.” If a holding company’s assets and activities are substantively linked to Finnish real estate, the right to tax may shift to Finland, even if the ownership chain involves multiple intermediate companies. The primary purpose of the company being sold may be to hold Finnish real estate, even if the company does not directly own the property.
2. Substance-based assessment strengthened
   KVL emphasizes that what matters is the company’s actual purpose and the composition of its assets, not merely the legal form. This aligns with previous case law highlighting substance-over-form analysis.
3. Implications for international real estate investors and funds
   The ruling affects practically all actors using holding or fund structures for Finnish real estate investments. It raises questions about whether the commercial purpose of the structure is sufficiently documented and how the company’s assets are defined. Notably, the case involved a situation where the tax treaty explicitly refers to indirect ownership of real estate, unlike in some other treaties, where the corresponding provision, based on its wording, covers only companies that directly own real property. This is, for example, the case in the tax treaty between Finland and Germany.

The decision is not yet legally binding, but it underscores the need to:

• assess the tax implications of holding and fund structures more carefully,
• document the commercial purpose of the corporate structure,
• ensure that the primary purpose of the structure is not treated as a “real estate company” for tax purposes, unless intended, and
• consider that a potential transfer may generate taxable income in Finland, even if ownership is arranged through multiple corporate layers.

KVL:2026/8 confirms that a company’s primary activity can be the ownership of real estate, even if the company holds the property only indirectly. The decision provides significant guidance for structures involving international real estate investments and emphasizes the importance of careful planning and documentation. It should be noted that the decision is not yet legally binding.

If your structure includes Finnish real estate, either directly or indirectly, this ruling should be taken into account in any potential future transfers.

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