In 2012, the Tax and Customs Board prescribed Nordea pay additional income tax in the sum of 7.6 million euros on payments the branch made to the Finnish headquarters. Tallinn administrative court and Tallinn circuit court did not satisfy Nordea's appeals and the tax decision remained in force.
Based on Nordea's appeal in cassation, the Supreme Court annulled the decisions of lower instance courts with its 19.04.2014 judgment. The Supreme Court also annulled the contested tax decision.
“Though Nordea contested the tax decision the tax authority had made, the case concerns a broader array of legal issues related to the taxation of foreign companies` permanent Estonian branches and the corresponding law amendments that entered into force in 2010, which the Supreme Court judgment finally clarified,“ noted the Head of Nordea Bank Legal Department Kerstin Pilt.
The firm's Attorney-at-Law Helmut Pikmets who represented Nordea in court explained: "The Supreme Court found that the law amendment was constitutional and the legislator did not aim to change the principles of tax calculation for permanent places of business, but amend the tax object accountancy methodology. However, the tax decision was annulled due to wrongful application of the law. Namely, the Supreme Court found that "taking out assets" in the context of the previous law and new norm implementing provisions had to be considered as taking out only those assets from the permanent establishment which in economic terms corresponds to payments received from equity, i.e. no other assets are provided for it. In this case, it was not so, because in essence, it was a repayment of a loan, i.e. the permanent establishment`s obligations to the head office decreased in the same amount as the sum paid to the head office."
"Such an approach corresponds to the Income Act and the principle arising from the Estonian and Finnish tax agreement in that the economic transactions between a non-resident and its permanent establishment in Estonia are taxed the same way as if these would have to be taxed if the non-resident had established an independent company in Estonia instead of the permanent establishment," added Kerstin Pilt.
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