Hannes Snellman Counsel to Several Landlords Defeating Finnish Tax Authorities’ Attempt to Deny VAT Deductions on the basis of Tenant’s Bankruptcy - The Decision by the Administrative Court Is Now Legally Binding
16 March 2018
As previously informed, Hannes Snellman’s tax, litigation, and insolvency teams collaborated to assist several Finnish landlords in a case where Finnish tax authorities tried to claw back VAT deductions on real estate investments due to the tenant’s bankruptcy. The Finnish tax authorities deemed that since the bankruptcy estate was paying the compensation to the landlords without VAT, the premises had been taken into use that is not subject to VAT. Hence, the landlords would be liable to retroactively repay the VAT deducted on investments made to these premises from the past 10 years.
Hannes Snellman assisted the landlords in their defence against the above-mentioned claims by the tax authorities. Hannes Snellman argued in the appeals of the landlords to the Administrative Court that since the landlords were obligated by the law and the general principles of loyalty between contract parties to let the bankruptcy estate to continue to use the retail premises without a lease agreement for the duration of the realisation of inventories, it did not have relevance to the VAT status of the landlords that the bankruptcy estate did not add VAT to the compensation paid in accordance with the Act on Commercial Leases.
The Administrative Court ruled in favour of this argumentation and decided that the use of the premises by the bankruptcy estate on the basis of law, not a contract, for the duration of the realisation of inventories, was more comparable to the premises being vacant than to a situation where the premises would have been leased for non-VAT use. In accordance with this decision, our clients are not liable to repay the substantial VAT claw back amounts demanded by the tax authorities. Consequently, our clients are allowed to deduct all VAT on expenses related to the premises. The Administrative Court also obligated the Tax Administration to pay a part of the legal expenses of the landlords.
The Tax Recipients’ Legal Services Unit - which is independent of the Tax Administration and oversees the rights of tax recipients in tax appeals – had a right to appeal to the Supreme Administrative Court, but decided not to use this right. Thus, the decision by the Administrative Court is now legally binding.