At KPMG, we want to help growth companies take advantage of new international financing and expansion opportunities. Internationalisation and access to global capital markets are decisive factors for many Finnish companies in terms of growth and competitiveness. One effective way to achieve this can be a so called flip arrangement, in which the ownership structure of a company is reorganised so that the Finnish company becomes a subsidiary of a foreign parent company. This provides new opportunities for Finnish growth companies to build a global ownership structure and attract investors who prefer companies incorporated in certain jurisdictions.
How Is a Flip Arrangement Implemented?
For a long time, the question of how a flip arrangement could be carried out tax‑neutrally outside the EEA was nearly unsolvable. In autumn 2023, the Supreme Administrative Court issued two important decisions concerning US flip arrangements.
In decision 2023:75, in which KPMG acted as the company’s legal representative, the Court confirmed that a flip arrangement can be executed tax‑neutrally through a merger without consideration. In this model, a US parent company establishes a new Finnish limited liability company, into which the existing Finnish company is merged. The decision also confirmed the application of the continuity principle to potential future share transfers by Finnish shareholders.
In the second decision (2023:74), the Court stated that a flip arrangement cannot be implemented tax‑neutrally via a share exchange. However, a new legislation which entered into force at the turn of the year changed this significantly: flip arrangements can now be carried out tax‑neutrally via a share exchange even with countries outside the EEA, provided certain additional conditions are met. In practice, this means that shareholders of a Finnish company exchange their shares for shares in a holding company located in the target country without immediate tax consequences.
What Does this Mean for Growth Companies?
A flip arrangement can be a strategic solution for companies aiming for global markets. It can facilitate access to international sources of funding and increase the company’s attractiveness in the eyes of investors. In addition to financing, a flip may be a justified decision for companies focusing on markets outside the EEA and seeking to position themselves for long term growth and success. A flip may also be relevant in cases where an entrepreneur relocates permanently abroad.
The new legislation makes flip arrangements more flexible and offers an option that was previously not tax neutral. The change in share exchange taxation also improved its usability as an exit strategy.
Timing and Planning
When should a flip arrangement be carried out—early in the company’s growth path or later? As a general rule, the earlier the arrangement is implemented, the simpler it tends to be from a legal perspective. It is therefore advisable to prepare for a potential flip well in advance, for example by including relevant provisions in shareholder agreements and option programmes so that the arrangement can be carried out smoothly in the future.
There are several factors to consider in a flip arrangement and understanding them is essential. Careful planning well in advance is the key to successful implementation. A flip executed as a share exchange can be faster to execute, however, transfer tax may become a significant cost. The transfer tax cost can be avoided by choosing an alternative flip model, which does require a slightly longer implementation period.
How Can We Help?
KPMG’s experts are happy to help evaluate the available options and implement flip arrangements efficiently—whether the target country is the United States, the United Kingdom, Canada, or another market outside the EEA. Together, we can build a path that supports your company’s long term success.
