MiFID Implemented in Finland
- Finland
- 12/20/2007
- Roschier, Attorneys Ltd. - Finland
Directive 2004/39/EC on Markets in Financial Instruments (“MiFID”) was implemented in Finland and the amended legislation entered into force on 1 November 2007. This article focuses on certain particularities, such as MiFID’s effects on private equity houses operating in Finland and taxation of certain asset transfers and dividend payments.
Private equity houses
After the publication of the draft Government Bill (43/2007) last summer relating to the amendments resulting from MiFID, there was active discussion on the market on how the amendments would affect private equity houses and whether such entities would be required to carry a license in order to provide investment advisory services as a general partner of a private equity fund. There were no specific exemptions available to private equity houses in the draft Government Bill and thus such entities might have fallen under the license requirement although this clearly was not the intention of MiFID. Accordingly, the Commerce Committee of the Finnish Parliament has in its recent report taken the view that an entity providing advice related to private equity activities as a general partner of a limited partnership could be considered comparable to collective investment undertakings and pension funds and e.g. their managers, as referred to in Article 2, item 1(h) of MiFID, and thus be exempted from the applicability of MiFID.
Notification obligation
The implementation of MiFID affects also other Finnish securities market legislation, such as notification obligations regarding holdings in Finnish investment firms, investment fund management companies and credit institutions. As a result of MiFID, the lowest threshold for notification obligation regarding change in control of such regulated entities was increased from five percent to 10 percent of the share capital or voting rights.
Tax Issues
In connection with the implementation of MiFID, Finnish tax laws were also amended as of 1 November 2007 by Government Bill (59/2007). The Finnish transfer tax regime was amended by extending the former exemption (whereby sales of shares over a stock exchange were exempted from transfer tax) to all kinds of sales of securities subject to public trading, either in a stock exchange or in other multilateral, regulated trading. The prerequisites for the transfer tax exemption are that the sale involves a qualifying securities broker either as a party or an intermediary and that the sale is carried out against a fixed cash consideration.
Although the amendment may at first sight be seen as extending the tax relief, it arguably actually tightens the taxation in several respects. It is expressly stated in the above tax Government Bill that the above exemption does not apply to 1) sales of shares based on agreements concluded before public trading in the relevant share has commenced (i.e. the so-called pre-opening trades in connection with IPOs), 2) sales carried out in connection with squeeze-out of minority shares under the Finnish Companies Act, 3) transfers of shares as a consideration for work carried out (i.e. various employment incentives) and 4) transfers of shares as a contribution to capital or distribution of assets in kind (this covers e.g. various share exchange arrangements and distributions of subsidiary shares as dividend to shareholders). Most of the above types of transaction have previously been possible to carry out exempt of transfer tax through transferring the shares over a stock exchange. In addition, the requirement that a securities broker has to be involved in the transaction in order to qualify for a transfer tax exemption may cause uncertainties e.g. in connection with various types of securities lending transactions.
In addition, the above Government Bill introduced an amendment according to which dividends paid by companies subject to other multilateral trading are taxed in the same way as dividends paid by companies listed on a stock exchange. This means effectively, tightening of dividend taxation for companies subject to other multilateral trading, as dividends paid by listed companies are subject to more extensive double taxation than dividends paid by non-listed companies, which have more extensive tax exemption provisions for both corporate and private person shareholders. The amendment of dividend taxation may discourage listings to alternative market places by family held or other medium sized enterprises.
