The Varul Tax Department has successfully represented Nordea Bank Finland's Estonia branch in a dispute with the Tax and Customs Board. The case concerned legal issues related to tax obligations on foreign companies` permanent Estonian branches, pursuant to statutory amendments which entered into force in 2010.
According to Varul, in 2012, the Estonian Tax and Customs Board ordered Nordea to pay an additional income tax in the sum of EUR 7.6 million on payments the branch had made to its Finnish headquarters. The Tallinn administrative court and Tallinn circuit court did not accept Nordea`s defenses, and the Tax and Customs Board's order remained in force. Based on Nordea`s appeal in cassation, however, the Supreme Court annulled the decisions of lower instance courts with its April 19, 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,“ asserted Kerstin Pilt, the Head of Nordea Bank Legal Department.
Varul Partner Helmut Pikmets represented Nordea in court, and explained that: "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."
