Securitization markets in Finland

This page updated regularly deals with securitization developments in Finland. If you have any data, developments or contributions to make to this page, please write to me. Your contribution shall be acknowledged with credit to you.

For details of the mortgage-securitization market in Finland, see the following article on our site. The information on this page on the tax treatment has been benefited by this article.

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See a good article by Gunnar Westerlund and Vesa Rasinaho in International Tax Review; London; Apr 1999

In Finland, the Housing Fund of Finland raised through securitisation in 1995 more than FIM 1.5 bn denominated in USD and in 1996 did the first public securitisation denominated in Finnish markka when it securitised about FIM 1.5 bn of its loan receivables.

The 1995 transaction pooled together loans granted between 1973 and 1989, that is, already considerably seasoned. At this time, the loan to value ratio had also considerably declined. Dublin was chosen as the location for the SPV for a number of reasons. Ireland, and especially the international finance centre of Dublin, is well known to investors, an important factor when a new product is being issued by a new issuer. The Irish legislation is 'securitisation-friendly', and the country has a well-functioning securitisation infrastructure, as a result of which the arrangements involved in the establishment of an SPV can be carried out quickly and smoothly. Another important reason was that the European Union has approved the favourable tax treatment companies can enjoy in the International Finance Centre of Dublin.

The law requires notification to debtors..

There is no specific tax legislation concerning securitization. A Finnish SPV is liable to tax in Finland. The law does not allow for any exemption from this tax. It is not altogether clear, however, whether the income of the SPV should be taxed as business income according to the Act on Taxation of Business Income, or as other income according to the Act on Income Taxation. The differences between these two acts are notable, especially concerning accrual of income and expenses

Because of these uncertainties and the fact that securitizations have been aimed at attracting foreign investors, most Finnish securitization transactions have been carried out through a SPV situated abroad. The relevant tax issues are then mainly determined by the tax regulations of the foreign jurisdiction in question and by the tax treaty between Finland and that jurisdiction. A foreign SPV has limited tax liability in Finland and is only taxed in Finland on income deriving from Finland. Whether the income of the SPV is taxed in Finland depends, among other things, on whether the SPV is considered to be engaged in business activities in Finland. Under most tax treaties, however, business income is taxed only in the company's country of residence when the company has no permanent establishment in the other country. Thus no Finnish tax will normally be due. Since no tax treaties exist between Finland and most so-called tax havens, the taxation of a SPV located in such a jurisdiction would be determined according to domestic Finnish tax rules.

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