The merger between A Ltd and B Ltd was registered to the Finnish National Board of Patents and Registration in 2008. B Ltd had verified tax losses from previous accounting periods. A merger consideration was paid in cash to the sole share-holder of B Ltd.
The local tax office stated that the merger was not in accordance with the Finnish legislation concerning transfer of losses. They considered that the merger met the requirements of Income Tax Act but did not comply with conditions of Business Income Tax Act. Tax officials interpreted that B Ltd was dissolved and thus the losses did not transfer to A Ltd.
The Supreme Administrative Court granted A Ltd the permit to appeal. A Ltd claimed that the ownership requirement concerning the transfer of loss stated in Income Tax Act (article 123) was fulfilled as both of the companies had the same sole shareholder. Thus A Ltd argued that losses should be transferred although the merger was not tax neutral from the perspective of Business Income Tax Act.
The main question in the Supreme Administrative Court was whether the articles of Income Tax Act and Business Income Tax Act were independent of each other or should they be interpreted in interaction with each other.
In its decision the Court ruled that a merger cannot be held as a merger meant in the article 123 of Income Tax Act if it does not fulfill the requirements of tax neu-tral merger as defined in the Business Income Tax Act. Thus, B Ltd should be held dissolved for tax purposes and the losses of B Ltd did not transfer to A Ltd.
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