New Supreme Administrative Court case concerning the deductibility of input VAT of PE buyside transaction costs triggers increased uncertainty

Insights|September 8, 2025

The right to deduct input VAT of buyside transaction costs in private equity fund backed transactions has still been a topical question in Finland even though the previous case law had brought some clarification to the subject.

We have previously covered the topic and described the conditions for VAT deduction and the importance of careful advance planning in our previous Insights articles published in April 2022 and February 2023.

SAC 2025:61

A Oy was established in connection with the acquisition of the A Group as a Bidco to purchase the parent company of the group and later to act as the parent company of the purchased group itself. The majority of the company’s shares were owned by a private equity fund managed by a private equity investor through foreign holding companies. After the transaction was completed, A Oy began selling management services to C Oy, an operative subsidiary of B Oy that was acquired by A Oy. A Oy did not sell management services to B Oy but nevertheless the Supreme Administrative Court (“SAC”) confirmed that it was not allowed to restrict the deduction rights because A Oy did not provide management services to the direct target, but C Oy which belonged to the same group of companies. The other disputed question was to what extent A Oy could deduct the input VAT on advisory costs related to the acquisition of B Oy.

Bidco’s right to deduct the input VAT had largely been denied by the Tax Adjustment Board and Helsinki Administrative Court. Bidco appealed to SAC, which overturned the Helsinki Administrative Court’s decision that had taken a very restrictive view of VAT deductibility for the transaction costs. SAC accepted Bidco’s appeal and returned the case to the Finnish Tax Administration to be re-evaluated. Despite the old SAC and Central Tax Board case law supporting a broader VAT deduction right, SAC seems to take steps towards a slightly more restrictive view in this new case. It stated, for example, that costs from due diligence, market surveys, valuation services, project management and tactics, deal closing, and authority approvals cannot be 100% allocated to Bidco (as was the case mostly in old case law), as they partially also directly support the private equity fund in its decision making related to and execution of the investment. The SAC continues by arguing that such costs typically arise irrespective of how the acquisition structure looks like and whether Bidco will commence provision of management services to target post-closing. As a result, it seems that going forward a larger portion of transaction costs need to be split between Bidco and the private equity fund, meaning a larger allocation to the fund. In the overturned Helsinki Administrative Court case 15% of legal advisory costs had been accepted as deductible for Bidco. While the SAC clearly says that it should not be 100%, they thought 15% was too little (for example, all legal DD costs had been denied a deduction). SAC also emphasized that primarily it’s the taxpayer claiming the deduction who has the liability to present the grounds for the claimed VAT deduction.

SAC 2025:61 emphasizes even further the importance of advance planning

As SAC returned the case to the Finnish Tax Administration, it remains to be seen what allocation keys the Tax Administration will use when reassessing the case, which to an extent will be dependent on what kind of clarification Bidco will be able to present that the costs primarily have benefited its business. Unfortunately, it is possible that the determination of the allocation key will be subject to another lengthy dispute, which would mean increased uncertainty in the coming years. The Finnish Tax Administration will likely continue active investigations of VAT deductions in various acquisition structures. Therefore, the role of early advance planning and incorporation of the structure as well as proper upfront allocation of transaction costs in connection with invoicing is becoming increasingly important.

Our tax experts are happy to discuss SAC’s latest case and its possible impact on your planned or ongoing transaction further.