Late-filing penalty and punitive tax increase in income taxation of corporate entities and benefits under joint administration

If a corporate entity or a benefit under joint administration files a tax return or tax information late, it must pay either a late-filing penalty or a punitive tax increase. Corporate entities include limited liability companies, cooperatives, associations and foundations. Benefits under joint administration include, for example, jointly owned forests and road maintenance associations.

Late-filing penalty or punitive tax increase?

Before the completion of tax assessment: late-filing penalty

If a corporate entity or a benefit under joint administration files a tax return after the due date but before the completion of the tax assessment, a late-filing penalty is imposed. The situation is the same regardless of whether the entity or the benefit has filed the return on its own initiative or after the Tax Administration’s reminder. The late-filing penalty is €100.

The Tax Administration also imposes a late-filing penalty if a corporate entity or a benefit under joint administration files a tax return on time but supplements or corrects it on its own initiative after the due date but before the completion of the tax assessment. In general, however, a late-filing penalty is imposed only if the changes made increase the amount of taxable income.

A late-filing penalty relating to income taxation can be imposed only once in a tax year.

Late-filing penalty is not always imposed

A late-filing penalty is usually not imposed on the late filing of deductions or other information that decreases the amount of taxable income, i.e. information that benefits the corporate entity or the benefit under joint administration. However, a late-filing penalty can be imposed if the corporate entity or benefit under joint administration neglects filing repeatedly or if its actions show apparent disregard for tax obligations.

Further, a late-filing penalty is not imposed in the following situations:

The Tax Administration has granted an extension for filing, and the corporate entity or benefit under joint administration files the tax return after the original due date but before the expiry of the extension.

  • A tax return has been filed late for reasons that are beyond the control of the corporate entity or the benefit under joint administration (such as malfunction of the public information network).
  • A tax return or changes to a tax return are filed only a little late or the details missing have little effect on the tax assessment.
  • The negligence is due to a special reason, such as force majeure.
  • The adoption of the financial statements affects the tax assessment and the corporate entity requires, without delay and before the completion of the tax assessment, that the taxation should be adjusted in accordance with the changed details.

The late-filing penalty is shown on the tax decision. As a rule, the Tax Administration does not contact the corporate entity or benefit under joint administration before imposing a late-filing penalty.

 

After the completion of tax assessment: punitive tax increase

If a corporate entity or a benefit under joint administration does not file a tax return before the completion of tax assessment, a punitive tax increase is imposed. A punitive tax increase is also imposed if there are omissions or mistakes in the tax return or in the other required information and the taxpayer does not correct them on its own initiative before the completion of tax assessment.

The amount of the punitive tax increase depends on how significant the mistakes or omissions are. Other circumstances also affect the punitive tax increase. The increase is calculated from a formula: it is 0.5–10% of the increase in taxable income, i.e. the amount that could not be taken into account before the completion of tax assessment due to  negligence. The reason for the increase in taxable income may be that the corporate entity or benefit under joint administration has neglected to report income or has claimed deductions in the tax return without good cause.

For corporate entities and benefits under joint administration, the minimum amount of tax increase is €150, even if the percentage-based increase would be lower. The punitive tax increase has no maximum amount in euros.

Punitive tax increase in income taxation of corporate entities and benefits under joint administration

Basic rate: 2% Used in the following situations:
  • Additions are made to the taxable income.
  • Unfounded deductions are corrected and the taxable income therefore increases.
Raised punitive tax increase: 3–10% Used in the following situations:
  • Repeated negligence.
  • The taxpayer’s actions show apparent disregard for tax obligations.
Reduced punitive tax increase: 1% Used in the following situations:
  • The case is ambiguous or open to interpretation (as referred to in the provision on the protection of legitimate expectations).
  • A punitive tax increase calculated based on the basic rate would be unreasonable for another special reason.
  • Income is received from abroad, and Finland must eliminate double taxation of foreign-sourced income based on a tax treaty, or tax paid on the income in another country is credited based on the act on elimination of international double taxation (Laki kansainvälisen kaksinkertaisen verotuksen poistamisesta 1552/1995). No justification for a raised punitive tax increase exists.
In connection with taxation by estimation: 5% Used in the following situations:
  • The Tax Administration uses taxation by estimation, because no tax return has been received or the information given in the tax return is inaccurate and cannot be used as a basis of taxation.
Tax return corrected on the taxpayer’s own initiative: 0.5% Used in the following situations:
  • The corporate entity or benefit under joint administration requests correction of an error on its own initiative

Punitive tax increase is not always imposed

A punitive tax increase is not imposed on the late filing of deductions or other information that decreases the amount of tax or taxable income, i.e. information that benefits the corporate entity or benefit under joint administration. However, a punitive tax increase can be imposed in these cases if a corporate entity or a benefit under joint administration neglects filing repeatedly or if its actions show apparent disregard for tax obligations.

Punitive tax increase is also not imposed in the following situations:

  • The negligence has little impact on tax assessment.
  • There is a good reason for the negligence, such as force majeure.
  • In view of the circumstances, a punitive tax increase would be unfair, and the preconditions for the reduced punitive tax increase mentioned in the table are met.
  • The adoption of the financial statements affects the tax return and the corporate entity requires, without delay and before the completion of tax assessment, that the taxation should be adjusted in accordance with the changed details.

As a rule, the Tax Administration contacts the corporate entity or benefit under joint administration before imposing a punitive tax increase.