Information on the taxation of capital repayment in Finland

L&T has paid its shareholders a capital repayment for 2011,2012 and 2013 distributing funds from the reserve for invested non-restricted equity. When a company distributes funds from a reserve to its shareholders, this is considered a capital repayment.

Capital repayment is taxed in accordance with the regulations on capital gains. No withholding tax shall be collected on the capital repayment at the time of payment.

Capital repayments have two additional effects:

1. Profit from capital repayment

Capital repayment generates taxable profit only if that repayment is more than the acquisition cost i.e., the purchase price of the share in question. Therefore, capital repayments seldom generate a taxable profit.

Lassila & Tikanoja performed a bonus issue on 18 November 2004, in which one old share could buy one new share without further payment. In terms of taxation, the shares received through the bonus issue without payment have no acquisition cost. The capital repayment for these shares generates a profit, which is calculated by deducting the deemed acquisition cost from the capital payment. The deemed acquisition cost is either 20 or 40 per cent of the amount of the capital repayment, depending on whether the subscriber had been, at the time of capital repayment, in possession of the shares for at least 10 years or under 10 years. Any profit is considered taxable capital income.

The profit is not considered taxable income if one receives capital repayments and sells shares, fund units, and other such assets to the value of no more than EUR 1,000 during one year.

The 2011, 2012 and 2013 capital repayment by Lassila & Tikanoja will not generate a taxable profit if you acquired your L&T shares on the stock exchange after the bonus issue of 2004.

2. Reduction in acquisition cost

Capital repayment reduces the acquisition cost of the share. If you sell the share later, you cannot deduct the portion of the capital repayment already subtracted from the acquisition cost from any capital gain or loss (i.e. deduct it for a second time). Any capital gain shall be taxed at the current tax rate.

If the deemed acquisition cost is used, capital repayment is not considered in the calculation of capital gain.

L&T shareholders are advised to study the instructions provided by the tax administration and, if necessary, contact their local tax office.