Negligence penalty charge for 2022 for a third-party submitter of information

This is an unofficial translation. The official guidance is drafted in Finnish and Swedish languages: VH/4179/00.01.00/2021.

Every year, individual taxpayers under the jurisdiction of the Tax Administration receive a pre-completed tax return, containing amounts and information extracted from the annual information returns submitted by companies that have paid amounts of money to the individual taxpayers. Pre-completed tax returns have an important role in the tax process. Accordingly, the third parties must report the right amounts and information to the Tax Administration, and they must also send the information on time and use the correct method of information interchange.  The Tax Administration uses the third-party information not only for the taxes of individual taxpayers but also for purposes related to the assessment of corporate taxpayers’ taxes for the year.

In addition, taxpayers and others under the jurisdiction of the Tax Administration must also provide facts about themselves, their customers, and about the international arrangements they have entered into. This serves the purpose of international exchange of tax information. Chapter 3 of the Act on Assessment Procedure lays down a number of rules on various processes related to the above. Taxpayers must abide by these legally defined processes.

The negligence penalty charge under § 22a of the act on assessment procedure can be imposed if the third party’s requirement to submit an annual information return is neglected. The size of the penalty charge is dependent on the volume of the reportable information that the party had neglected to send. The volume is important because the negative impact of missing amounts of money and other facts – or the negative impact caused by errors – will only grow if a large volume of reportable data is neglected.

The guidelines given in this memorandum do not apply to the information reporting governed by the Act on the income information system (Laki tulotietojärjestelmästä (53/2018)).  Instead, the relevant instructions are found in: "Charges collected for neglect to submit reports to the Incomes Register" - Tulorekisteri-ilmoittamisen laiminlyöntimaksu (in Finnish and Swedish, link to Finnish).

In the same way, the guidelines here do not apply on submittal of information under § 39 of the act on assessment procedure for self-assessed taxes.

The requirement of third parties to report information

The general and special information-reporting requirements of third parties are controlled by the legal provisions found in Chapter 3 of the Act on assessment procedure.  Moreover, the Tax Administration’s official decision on requirements of third parties to send information contains detailed rules (Verohallinnon päätös yleisestä tiedonantovelvollisuudesta; Skatteförvaltningens beslut om allmän rapporteringsskyldighet). The official decision’s sections 44 and 45 set out rules on the deadlines for the third parties to send the information and also on the methods to be used.

The following official decisions of the Tax Administration contain more information on deadlines and reporting methods:

Decision of the Tax Administration on the requirement to report information on financial accounts (A35/200/2016),

Decision of the Tax Administration to exchange information in accordance with the FATCA agreement (A38/200/2015),

Decision of the Tax Administration on information-reporting requirements in the construction sector (VH/1950/00.01.00/2019),

Decision of the Tax Administration on the requirement imposed on payers of interest, within the meaning of relevant legislation, to report information (A70/200/2016)

and the Official Decision on providing information on reportable arrangements (VH/2566/00.01.00/2020).

Deadline for submittal

The returns must arrive at the Tax Administration by the date of the relevant deadline. If the date falls on Saturday, Sunday or other holiday, the requirement to submit the information return is extended to the next business day, i.e., the submitted file must arrive at the Tax Administration on that day.

The great majority of annual information returns must be submitted by 31 January 2023.

The returns listed below have deadlines different from January 31:

• Annual information return concerning paid interest as governed by the act on tax withheld at source on interest - third parties must submit it by 15 February 2023
• The information return on shareholder borrowing must be submitted by 24 February 2023.

You can request an extension of time to submit the information return if it is not possible for you to submit it by the deadline.

Deadline for submittal of notifications concerning a Reportable Arrangement:

Both a service provider that has the information-reporting requirement (§ 17e of the act on assessment procedure) and a relevant taxpayer (§ 14f of the act on assessment procedure) must submit a notification on a reportable arrangement to the Tax Administration within 30 days of the date when any of the following thresholds is exceeded (§ 5 and § 9 of the act on reportable arrangements in the field of taxation (Laki raportoitavista järjestelyistä verotuksen alalla (1559/2019)):

• the reportable arrangement has been made available for implementation,
• the reportable arrangement is ready for implementation, or
• the first step of the reportable arrangement has been implemented.

Method of reporting 

The payor must submit the information electronically for any year when the payor has made payments to at least five persons, i.e., to at least 5 earners of income during the year. However, the requirement to submit information electronically does not concern natural persons and estates of deceased persons.

The following is a non-exhaustive list of annual information returns that must be submitted electronically: Annual information return on loan principal and paid interest, Annual information return on transferred foreign dividends, Authorised Intermediary’s annual information return, Annual information return on a non-listed limited company's share issue to employees, Annual information return on other payments treated as earned income or capital income, Annual information return on dividends paid by a listed company to nonresident taxpayers, Itemisations of purchases and sales of securities by security brokers and investment funds, Annual information return on interest payments subject to taxes at source, Annual information on public subsidies paid out, on the number of days of paid-out unemployment relief, Annual information return on refunds of equity, Annual information return on voluntary individual retirement insurance and long-term PS accounts, Annual information return on received asset-management fees, Information on work income for purposes of pension insurance, Information on grants, Information covered by the provisions of FATCA and CRS/DAC2, Annual information return about equity savings accounts, and Annual information return on intermediated services.

“Electronic” submittal refers to the e-services made available to taxpayers by the Tax Administration, including: The gateway service on the Ilmoitin.fi website, the Vero API interfaces and the fillable web forms available on the “e-File” page. 

Submitting an application for extension of time to send the information

If you need to ask for an extension of time for your deadline, you must submit an application to the Tax Administration by the original deadline date of the annual information return, before the closing hour of the office. If the application were to arrive past the deadline, it would be regarded as having arrived late and would not be processed. For applications past deadline, the submitter must invoke a special reason that had caused the delay, otherwise the Tax Administration cannot process the application and extend the deadline.

If you need to ask for an extension of time, both written and spoken requests are accepted. For example, if the annual information is due 31 January 2023, and you phone the Tax Administration to ask for an extension of time, the maximum extension that can be given would be 3 February 2023. In order to ask for a longer extension, you must submit a written application. If we receive a written application for extension of time, citing good reasons for the need to extend the deadline, the maximum extension is up to 8 February 2023. If the annual information return’s deadline is 24 February 2023, you must submit a written application for extension of time. The returns must arrive at the Tax Administration by the date of the extended deadline that had been set out.

The application for extension of time can be written in free text. The following information is required:

• Date
• Submitter’s name
• Business ID or personal identity code
• Name of the annual information return for which more time is needed
• Up to what date you are requesting an extension
• Reason(s) for your request
• Contact information, either for the party that has the IRR / for an agent or representative

Applications for extension of time for notifications concerning Reportable Arrangements

According to the legal provisions in force, both a relevant taxpayer with a reporting obligation and a service provider having the information-reporting requirement must submit the notification within a 30-day deadline. The act governing Arrangements Reportable for tax purposes (Laki raportoitavista järjestelyistä verotuksen alalla (1559/2019)) contains no provisions on the subject of extensions of time for the notification’s deadline for submittal.

Penalty charges for negligence

Penalty charges laid down in § 22a of the act on assessment procedure, can be imposed if the general information-reporting requirement or the related specific obligation to submit information return is neglected.

In addition, if neglect has occurred in the reporting referred to in § 14f and § 17e of the act on assessment procedure – regarding reportable arrangements – the provisions of § 22 on penalty charges can be applied.

The amount of the penalty charge depends on the severity of the negligence. The charges are imposed in euros rounded out to even hundreds, i.e., the lowest charge to be imposed is €100. Imposing a negligence penalty is always preceded by arranging an opportunity for the concerned party to be heard.

Third-parties liable to report information may be imposed a penalty charge of up to €2,000, if

1. The return, other information, document submitted, or the process that should be adhered to, in order to fulfil the information-reporting requirement or another responsibility set out in Chapter 3 of the act on assessment procedure, has contained a minor deficiency or error, and after having been prompted to make corrections – with evidence proving that a prompting message was sent – the third-party still did not eliminate the deficiency or error;

2. With no valid reason, the third party liable to report information submitted a report, information or document late; or

3. The party submitted the information in a manner different than decreed by law or ordered by the Tax Administration.

If the party concerned by the information-reporting requirement has, in order to comply with that requirement or some other responsibility defined in Chapter 3 of the act on assessment procedure, submitted an annual information return, other information or document, or conducted a relevant procedure, with material deficiencies or errors, or has only taken action after a prompting message had been sent, with evidence proving this, apenalty charge of max. €5,000 may be imposed.

If the party, making it seem as if the requirement to report information would be fulfilled, has intentionally or through gross negligence submitted a return, other information or document in a form that is substantially incorrect, or has failed to submit a return at all, or has neglected some other responsibility defined in Chapter 3 of the act on assessment procedure, partially or fully, the Tax Administration can impose maximally €15,000 as the penalty charge for negligence.

When the Tax Administration determines the exact amount, it considers the extent of the information that should have been reported.

The above charges are not imposed on natural persons and estates of deceased persons unless the failure relates to reporting requirements connected to business, agriculture or a forestry operation (§ 22a of the act on assessment procedure).

No payments of negligence penalties can be claimed as deductible expenses in tax assessment.

Interest for delayed payment is collected from an imposed and overdue penalty in accordance with the provisions of § 5a of the Act on Surtax and Penalty Interest. The interest period begins on the day following the set due date, and the calculation of interest will continue until the actual payment date of the imposed charge. No payments of such interest can be claimed as deductible expenses in tax assessment.

Decisions on negligence penalty charges

The Tax Administration decides on each case separately, imposing the charge for every annual information return that is missing, containing significant errors, or submitted late; and also, for leaving a Tax Administration’s request letter for additional information unanswered.  When the amount is determined, it is possible to take account of the submitter’s total count of missing itemisations on income recipients, the number of occurrences of neglect, the number of prompt messages that the Tax Administration has sent to the submitter,  the economic value connected to the reportable information  and the point in time when a submitted information return actually arrives. If the annual information return is submitted but a method not compliant with the Tax Administration’s instructions is used, penalty charge may be imposed on those grounds as well. The amount of the charge is increased if the third-party has submitted no information at all by 15 March 2023, or if information had been submitted but the errors and omissions in it cause problems in the international information exchange; or the Tax Administration has received no information at all.  If the third-party neglects its information-reporting requirement repeatedly, the amount of the charge is increased.

The act on assessment procedure provides detailed rules in § 17 a to § 17 e on careful procedures and several other processes that concern financial institutions and service providers. Negligence penalty charges can be imposed with respect to reporting problems and with respect to neglect of the duty of care as provided in the act. Each penalty charge is specific to a certain information return, and to a certain information flow. The types of neglect described here and the ensuing sanctions are not covered by other legislation. The third-party information-reporting requirement is characterized as a legal obligation that does not coincide with the scope of application of Finland’s criminal law or with administrative sanctions.

Amounts of penalty charges  

The tables below determine the size of the penalty charge whenever there are no factors to reduce or increase it. In general, the amounts below depend on the economic value of the information or on how many itemisations of recipients of income are involved, whichever of these two values is higher.

If a third-party, making it seem as if the requirement to report information would be fulfilled, has intentionally or through gross negligence submitted a return, other information or document in a form that is substantially incorrect, or has failed to submit a return at all, or has neglected some other responsibility defined in Chapter 3 of the act on assessment procedure, partially or fully, the amount is always at least twice the amount of the payments in the table above and a maximum of €15,000. The above 15,000-euro limit is applied separately for every year of payment and for every information return.

Penalty charges can be reduced or they can be waived entirely if good reasons make it justifiable to do so. For example, the party concerned by the information-reporting requirement may have neglected only an insignificant volume of information, which under the circumstances is not an important negligence, or which has little or no economic value.

The amount of the charge when the neglect is connected to information exchange

It is also within the Tax Administration’s jurisdiction to impose the penalty charge for negligence relating to the international exchange of tax information, within the meaning of § 17a – §17d of the act on assessment procedure (connected to FATCA and CRS/DAC2) and relating to the information-reporting requirements and careful processes under § 23a of the act on assessment procedure. In these circumstances, the table below determines the size of the penalty charge whenever there are no special factors to reduce or increase it.

Penalty charges can be reduced or they can be waived entirely if good reasons make it justifiable to do so. For example, the third-party concerned by the information-reporting requirement may have neglected only an insignificant volume of information, which under the circumstances is not an important negligence, or which has little or no economic value.

However, if the economic value of the unreported information is high, it would make it necessary to increase the penalty charge. In this case, the unreported information may consist of accounts and/or payments. Another factor that makes it necessary to increase the charge would be a characterisation of the third-party’s neglect as being connected to new accounts, or high-value accounts. Under the rules in force in CRS/DAC2, a “new account” is one with an opening date of 1 January 2016 or later, and correspondingly, for FATCA, an account opened 1 July 2014 or later.

If a third-party, making it seem as if the requirement to report information would be fulfilled, has intentionally or through gross negligence submitted a return, other information or document in a form that is substantially incorrect, or has failed to submit a return at all, or has neglected some other responsibility defined in Chapter 3 of the act on assessment procedure, partially or fully, the amount is always at least twice the amount of the payments in the table above and a minimum of €15,000.

If the neglect has concerned Reportable Arrangements (within the meaning of DAC6), the penalty charges are determined on a case by case basis.

Adjustment and appeal

Parties having the information-reporting requirement, and the Tax Recipients' Legal Services Unit can appeal a decision made by the Tax Administration concerning a negligence penalty to the Assessment Adjustment Board. Appeals must be submitted in writing in the form of a claim for adjustment.

You must do so within 60 days of the date when you receive notice of the Tax Administration’s decision. For the Tax Recipients’ Legal Services Unit, the appeal period is 60 days from the date of decision.