The Board of Adjustment of the Large Taxpayers’ Office has on 21 August 2014 unanimously approved Fortum Corporation's appeal for the tax assessment imposed on Fortum for the year 2007 in December 2013. The Finnish tax authority levied the taxes based on the revenue earned by Fortum’s Belgian subsidiary; the same revenue has already been taxed in Belgium in accordance with Belgian tax legislation. According to international taxation principles, taxes are to be paid in the country where the revenue is earned, and the same revenue cannot be taxed multiple times. The additional taxes imposed by the Finnish tax authority including penalties and late payment interest amounted to EUR 136.4 million.
“The decision by the Board of Adjustment was naturally much expected and welcomed by us. I hope that it foreshadows the tax authority’s interpretation also in the future. The predictability of the operating environment – and taxation as part of it – is vitally important to capital-intensive companies like Fortum,” says Reijo Salo, Vice President, Corporate Tax at Fortum.
The Board of Adjustment’s decision is in line with the principle adopted in the Supreme Administrative Court’s precedent in June 2014, according to which, under transfer pricing rules, the nature of the business cannot be re-characterised for tax purposes, but can only adjust the pricing of goods or services. The initial position of the tax authority was that, under the transfer pricing rules, the equity investment made by Fortum Corporation to its Belgian subsidiary could have been re-characterised as available funds or as a loan given to the Belgian company.
The Tax Recipients’ Legal Services Unit has the right to appeal in the matter. Fortum has an ongoing tax audit in Finland for 2008-2011. The Large Taxpayers’ Office has not announced how it will proceed in the changed situation.
Reijo Salo, Vice President, Corporate Tax, Fortum Corporation, tel. +358 050 452 4443
Fortum and taxation
Fortum’s policy is to pay taxes on the production, employment, property and earnings of each of the Group’s businesses in accordance with each country’s local regulations. The company is a large taxpayer in its main operating countries of Finland and Sweden but also pays several different taxes in other countries where it does business. In 2013, for every EUR 1 of corporate tax, Fortum paid EUR 1.69 other taxes and its total tax rate was 33.8%. See Fortum’s tax footprint reports.
Fortum’s purpose is to create energy that improves life for present and future generations. Catering to the versatile needs of our customers, we generate, distribute and sell electricity and heat, and offer related expert services. Our operations focus on the Nordic and Baltic countries, Russia and Poland. In 2013, Fortum’s sales totalled EUR 6.1 billion and comparable operating profit was EUR 1.6 billion. We employ approximately 8,800 people. Fortum’s shares are traded on the NASDAQ OMX Helsinki. www.fortum.com