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Finland

The Finnish Central Tax Board (FCTB) has issued a preliminary ruling on the taxation of securities lending. The applicant, a corporate entity generally liable to tax in Finland, intended to begin securities lending on the Stockholm Stock Exchange (SSE) in accordance with the SSE's standardized securities lending agreements. The terms and conditions of such agreements are standardized under the rules of the SSE and allowed the applicant to lend securities against a premium for a fixed period of time. The SSE acted as the clearinghouse for the lending agreements and placed itself as the adverse party to both the lender and the borrower.

The question posed to the FCTB was whether the transfer of securities carried out under the lending agreements should be regarded as a transfer of securities under the Finnish Business Income Tax Act (the Act). According to a general rule of Finnish tax law, securities lending will be regarded as a transfer of securities and give rise to capital gains tax unless it fulfils certain requirements as set out in the Act. The FCTB held that all the requirements as set out in the Act were not fulfilled because: (i) the clearing of the lending agreements did not take place in Finland; and (ii) the conditions of the lending agreements had not been approved by the Finnish Financial Supervision Authority.

Despite this, the FCTB ruled that the securities lending agreement was not to be regarded as a transfer of securities in the taxation of the applicant and that the arrangement would not, therefore, give rise to capital gains tax. The FCTB based its ruling on Articles 49, 50 and 56 of the EC Treaty, which prohibit restrictions on the provision of services between member states and restrictions on the movement of capital between member states.

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