The Supreme Administrative Court upheld the entrepreneurs’ appeal against the Finnish Tax Administration’s advance ruling
The appeal pursued by MBO Partners against an advance ruling issued by the Finnish Tax Administration reached its final resolution when the entrepreneurs won their case and their appeal was upheld by the Supreme Administrative Court on 21 August 2026.
The entrepreneurs owned the shares of the parent company of a group, which in turn owned two subsidiaries. MBO Partners assisted the parent company in the sale of the shares of both subsidiaries to new owners. The Finnish Tax Administration issued a tax ruling stating that both transactions constituted disposals of fixed-asset shares and were therefore tax-exempt disposals for the parent company. More than ten years earlier, MBO Partners had already acted as the entrepreneurs’ financial adviser in corporate restructuring arrangements within the group.
After the transactions, the parent company’s administrative services business was wound down as unnecessary, since the company had divested its ownership of the two subsidiaries through which it had conducted its business operations within the group structure. The parent company’s assets consisted solely of cash and securities investments, and it no longer carried on any business activity.
The entrepreneurs were already of retirement age and were not related to each other. Liquidating the parent company would have been a natural way to transfer the proceeds from the business sales into the entrepreneurs’ personal ownership. However, this was not sensible because, in both subsidiary sales, the parent company had committed in the sale agreements, through the seller’s representations and warranties, to compensate the buyers for certain losses originating from the period during which the parent company owned the subsidiaries. If the parent company had been liquidated, these seller liabilities would have become the entrepreneurs’ personal liabilities. Consequently, liquidation of the parent company was not an option for at least the following six years.
MBO Partners prepared an application for an advance ruling on behalf of the entrepreneurs, asking the Finnish Tax Administration whether the parent company could acquire its own shares from the entrepreneurs without the transaction being regarded as a disguised distribution of dividends.
In this way, the entrepreneurs would have been able to withdraw the majority of the parent company’s assets at the ordinary capital gains tax rate of approximately 20% (using the deemed acquisition cost deduction of 40%). Liquidation of the parent company would have resulted in the same tax outcome.
The Finnish Tax Administration issued a negative advance ruling, stating that the arrangement described above would constitute disguised dividend distribution to the entrepreneurs.
“The advance ruling was in clear contradiction with a legally binding advance ruling issued by the Central Tax Board (KVL 10/2019), where the circumstances were identical to the situation of MBO Partners’ clients and to the proposed arrangement”, says Kari Juurakko, who handled the matter.
An appeal was filed with the Helsinki Administrative Court, which dismissed the appeal. The entrepreneurs therefore decided to appeal to the Supreme Administrative Court (KHO).
The Supreme Administrative Court granted leave to appeal and upheld the entrepreneurs’ appeal by a vote of 3–2 (KHO 2026:61, in Finnish). At the same time, the Court overturned both the Finnish Tax Administration’s ruling and the decision of the Helsinki Administrative Court.
As a result of the Supreme Administrative Court’s decision, the entrepreneurs now have the opportunity to transfer the majority of the parent company’s assets into their personal ownership without the company’s repurchase of its own shares being considered a disguised dividend distribution. The parent company may therefore distribute funds to its owners by purchasing its own shares from them, and the owners will be subject only to the normal capital gains tax.
MBO Partners acted as the clients’ tax-law adviser in the matter and prepared both the advance ruling application submitted to the Finnish Tax Administration and the appeals to the Helsinki Administrative Court and the Supreme Administrative Court.
“As part of business acquisitions, divestments, and other corporate reorganizations, it is essential to plan the tax consequences well in advance of the transaction, during the sales process, and for the years following completion of the deal. MBO Partners provides tax-law advisory services as part of its overall service concept, meaning clients do not need to obtain the service separately from, for example, a law firm”, Juurakko emphasizes.
Verotieto Oy published the following notice in its TaxFax publication on 21 August 2026
New Case Law
Repurchase of Own Shares Was Not a Disguised Dividend
Retired entrepreneurs A and B each owned 50% of the shares in C Oy. The management services business conducted by C Oy had diminished after the company disposed of two subsidiaries in 2022 and 2024, and the company’s operations were intended to cease during 2025. During tax years 2022–2024, C Oy distributed dividends ranging from €164,000 to €218,000 per year, and all funds recorded in its reserve for invested unrestricted equity, amounting to €297,500, had been returned.
The plan was for the company to acquire 115 of its own shares from each shareholder, paying €1,996,686.11 to each of them. After the transaction, each shareholder would retain ten shares in C Oy.
The issue to be decided was whether A would receive disguised dividend income under Section 29(2) of the Act on Assessment Procedure when C Oy acquired its own shares from them.
The Supreme Administrative Court held that the applicability of Section 29(2) of the Act on Assessment Procedure in situations where a limited liability company acquires its own shares from a shareholder must be determined through an overall assessment that takes into account both aggravating and mitigating factors.
In this case, mitigating factors weighing against the application of Section 29(2) included C Oy’s regular distribution of dividends, the return of funds recorded in the reserve for invested unrestricted equity, and the reduction in the funds required for C Oy’s business activities. Accordingly, C Oy could not be regarded as having acquired its own shares for the purpose of avoiding dividend taxation. The matter was not assessed differently merely because the share acquisition did not alter the shareholders’ ownership percentages.
Vote: 3–2, with a dissenting opinion from the reporting judge.
Advance ruling of the Finnish Tax Administration concerning tax years 2024 and 2025.
Supreme Administrative Court, 21 August 2026, Decision No. T 2114, precedent KHO 2026:61 (in Finnish).
