The Supreme Administrative Court of Finland (Korkein hallinto-oikeus) has ruled that the benefit-in-kind tax for the CEO of a company is to be calculated on the mere ‘availability’ of collectible cars to them, and not just the ‘use’ of such collectible cars.
In the case ,a company intended to provide its principal shareholder (a CEO), access to three collectible cars, primarily acquired as investments. The Finnish Tax Administration ruled that the CEO would receive a taxable benefit whenever the cars were available for his use.
The Turku Administrative Court overturned this, stating the benefit should be based on actual use. However, the Supreme Administrative Court of Finland reinstated the Finnish Tax Administration’s view, emphasising that the benefit arises from the cars’ availability, not just their use.
Background
B, a company, intended to provide its principal shareholder and CEO, referred to as A, access to three collectible cars owned by the B, a company. These collectible cars were primarily acquired as investments and were to be used seasonally from late April to early September, during the summer months. One of the three cars could also be used to reward employees for exceptional performance or on special occasions.
The Finnish Tax Administration (Verohallinto) had initially decided that A would receive a taxable car benefit whenever he used the cars for personal purposes, and the value of this benefit should be calculated based on the Tax Administration’s guidelines for fringe benefits.
The company, B Oy, sought an advance ruling to clarify if A would receive a taxable benefit on the days he used the cars for personal purposes and how the value of such a benefit should be calculated.
An ‘advance ruling’ in this context refers to a formal decision provided by the Finnish Tax Administration upon request by a taxpayer, such as a company or an individual, regarding the tax treatment of a specific transaction or situation. This ruling helps the taxpayer understand how the tax laws will be applied to their particular circumstances, providing clarity and certainty about their tax obligations.
The Finnish Tax Administration, in the context of the advance ruling, decided that A would receive a car benefit whenever he used the cars for personal purposes, and the value should be calculated based on the time the cars were available for use; and not just the days they were actually used.
At first instance at the Turku Administrative Court
A appealed this advance ruling. At first instance, the Turku Administrative Court (Turun hallinto-oikeus) overturned this ruling of the Finnish Tax Administration.
It acknowledged that A, as the principal shareholder and CEO, had significant control over the use of the collectible cars, including decisions about their insurance and periods of road use. However, the administrative court emphasised that the actual use of the cars for personal purposes was infrequent and well-documented through a logbook. The company, B Oy, had provided evidence that A used the cars only 2-3 or 2-5 times per year for personal purposes, and this usage was carefully logged.
The first instance administrative court therefore decided that the value of the car benefit should be calculated based on the actual days of use rather than the availability of the cars. This meant that A would only be taxed for the days he actually used the cars for personal purposes, rather than for the entire period the cars were available to him. The court reasoned that merely having the cars available did not constitute a continuous benefit, especially given their primary purpose as investments, and their limited use due to their collectible nature.
This initial ruling limited the tax liability of A.
At final instance at the Supreme Administrative Court
The Finnish Tax Administrative appeal that judgment. The Supreme Administrative Court’s decision hinged on the interpretation of what constitutes a ‘benefit’ under tax law.
According to the Supreme Administrative Court, A is deemed to receive a monetary benefit from each of the collectible cars when they are available for his use, regardless of the actual frequency of use.
In reaching this conclusion, the final instance court emphasised that the cars are considered available to A as long as they are registered for road use, even if A only intends to use them occasionally. The fact that the keys to the cars were not always in A’s possession, and that one of the cars might occasionally be used by other employees, did not alter that conclusion.
This decision overturned the Turku Administrative Court’s ruling, and was thus, a victory for the Finnish Tax Administration.
Analysis
The judgment of the Supreme Administrative Court highlights the complexities involved in valuing non-cash benefits. The ruling suggests that the mere availability of a benefit, even if not frequently used, can constitute a taxable advantage.
This case provides a precedent for how such benefits should be assessed. It underscores the importance of availability over actual use in determining the value of a benefit. This principle can be applied to various other fringe benefits, not just car benefits, potentially affecting how companies provide and report such benefits to their employees.
Read the judgment
The judgment of the Supreme Administrative Court of Finland (Korkein hallinto-oikeus) in KHO:2024:108, delivered on 30 September 2024, can be read here.