Hannes Snellman Counsel in Administrative Court Case Confirming Mutual Real Estate Company’s Taxation under Business Income Tax Act
18 May 2020
Hannes Snellman advised a client engaged in real estate business in a case confirming a fully owned mutual real estate company’s (MRECs) taxation in accordance with the Business Income Tax Act (BITA). The Tax Administration had taxed the MREC under the Income Tax Act, leading to a situation where, for instance, the MREC’s capital losses were not offsettable against its ordinary taxable income. The Assessment Adjustment Board had upheld the Tax Administration’s standpoint and Hannes Snellman assisted the MREC in appealing the decision to the Administrative Court.
The Administrative Court reasoned that the real estate owned by the MREC was used in the client’s business as the client leased premises in the real estate to third parties. The Tax Recipients’ Legal Services Unit claimed that an earlier precedent by the Supreme Administrative Court (KHO 2014:36) implied that an MREC can be taxed under the BITA only when the owner itself uses the premises of the MREC and carries out its own business from these premises. The court overruled this argument and confirmed that the decisive factor in the earlier precedent was that the owner uses the premises for a business purpose, including the business of renting the premises to third parties, and not that the owner itself would be required to occupy the premises as such.
The Administrative Court also held that it would be unreasonable for the tax payer to have to carry the legal costs from a dispute of this nature where an appeal is needed to rectify the incorrect outcome of the taxation and concluded that the Tax Administration is liable to cover a part of the tax payer’s legal expenses.