The right to deduct VAT in share transactions can be supported and defended with good advance planning and documentation

The right to deduct transaction costs incurred in share sales is one of the most recurring themes in the area of VAT. In this article, our experts explore the subject further.

The main principle is that there is an extensive right to make deductions. Therefore, a company may deduct costs that can directly be linked to taxable activities. On the other hand, the mere acquisition of financial interests in other undertakings cannot be regarded as the exploitation of property for the purpose of obtaining income therefrom on a continuing basis.

Therefore, this will lead to a situation in which the transaction costs will not be deductible. The situation may, however, be different, if the acquiring or selling company is, or will be, directly or indirectly involved, in the management of the companies whose shares have been acquired or sold. If such services are provided, the costs have a direct and immediate link with the economic activity as a whole of the acquiring or selling company. In such case, the costs could be considered as overhead costs and there should be a right to deduct VAT.

As the Finnish Tax Administration has recently paid more attention to VAT deductions concerning share transaction costs, the allocation of share transaction costs requires careful advance planning and preparation.

The increased degree of supervision in share sales means that careful advance planning is required

Roschier has recently advised several companies on defending against the Finnish Tax Administration’s fairly far-reaching claims in connection with VAT audits. The key to success in these situations is proper advance planning and adequate documentation supporting the actual allocation of transaction costs. Also, pre-emptive discussions with the Tax Administration have proved to be an effective and quick way to receive written confirmations in advance.

In the case of some share sales, the Tax Administration has argued that the acquiring company does not have the right to deduct transaction costs, especially if a private equity fund has ultimately been involved in the acquisition. This has been deemed to be an indication that the costs actually belong to the private equity fund, instead of the acquiring company.

As a result of this, the tax authorities have demanded that the deductions made by the acquiring company should be lowered or removed completely, claiming that the costs have primarily been accrued in the course of private equity investment activities.

This strict interpretation by the Finnish Tax Administration is in no way in line with the current case law. As early as in December 2020, the Central Tax Board (CTB) issued a binding preliminary ruling by which the deductions made by the acquiring company were allowed, even though a private equity fund was involved in the acquisition structure. The CTB also confirmed that the acquiring company had the right to deduct costs accrued in the preparatory stage, because the costs were overhead costs, and there was a direct and immediate link to the acquiring company´s economic activity as a whole.

The transaction costs included typical transaction-related expenses such as advisor’s fees for legal, financial and commercial due diligence, share purchase and financing agreements and related negotiations, and competition law-related advice.

Subsequently, in 2021 and 2022, in a couple of other legally binding decisions in similar cases, the Helsinki Administrative Court dismissed the Finnish Tax Administration’s claims that the deduction right should be abolished, because the acquisition structure included a private equity fund or because the costs were not deemed to be preparatory costs. The court even considered some of the claims to be unreasonable, ordering the Finnish Tax Administration to pay the company’s legal expenses.

In connection with share sales, there may sometimes only be a fine line between the deductible and non-deductible costs. Therefore, careful planning is even more important to avoid undesired disputes with the Finnish Tax Administration.

It is recommended to allocate the transaction costs between the target company and the shareholders on a detailed level based on the actual content of the services. Whether share acquisition or disposal related costs, target companies should only bear costs primarily benefitting them, e.g. as a result of the refinancing of their existing bank and other debts.

Issues to be considered in advance planning

Based on our recent experience, the key to ensuring that a right of deduction arises and that transaction costs are allocated to the company instead of its ultimate shareholders is to prepare, in advance if possible, sufficient documentation concerning the right of deduction and allocation of the costs so that it can be easily accessed when necessary. Thus, it’s important to focus on, and carefully plan in advance, e.g. the following issues:

The actual beneficiary of the transaction

It is important to allocate and divide the costs in advance and realistically between the acquiring company and its shareholders in order to ensure the most favorable level of VAT deductions. In share sale transactions, the general rule should be that the sellers should bear most of the costs. However, the full deduction right for the target companies in connection with IPO or PTO transactions has traditionally been accepted due to the extensive shareholder base. The same principle should also apply to private companies with an extensive shareholder base.

Documentation of the content of services

It is crucial to ensure and have documentation in place showing the content of the services and that this is reflected in the wording of the service agreements. Specifications from external advisors supporting the allocation of transaction costs are also recommended.


It is important to pay extra attention to which party prepares and negotiates the transaction advisory service agreements and when the agreements are entered into. Further, the documentation supporting the allocation of transaction costs is recommended to be made in advance after closing.

If a share acquisition is postponed for any reason, it is important to be able to show the intended plan to start providing taxable services to the target company (a necessary prerequisite for any VAT deduction). In the event of a postponed share sale, it is important to charge the costs from the target company (if it has paid costs in the first instance) to the shareholders at a later stage.

Closing remarks

The Finnish Tax Administration is still actively investigating the deductibility of transaction costs in share transaction structures, even though the deductibility of transaction costs has been accepted in several court decisions. Therefore, it is important to plan the contemplated structure in advance. It is also often advisable to arrange a pre-emptive discussion with the Finnish Tax Administration or to seek a formal advance ruling to confirm the deductibility and the right allocation in advance.

Roschier has recently been actively involved in several VAT audits and correspondence with the Finnish Tax Administration concerning share transaction cost deductions. Our tax team is happy to elaborate further on our latest experiences and examine any possible VAT implications to reach the full or at least most favorable level of deductions of any transaction related costs. Further, Roschier is ready to offer all possible support to defend the VAT recovery right in connection with VAT and tax audits. It is recommended that any such support is provided as early in the process as possible.


Main contacts

Mika Ohtonen 
Eero Männistö 
Senior Associate
Andreas Bussman 
Principal Associate