I INTRODUCTION

Remuneration of companies’ senior executives and the appropriateness of such remuneration has, over the past few years, been increasingly discussed in Finland. No important legislative amendments have been introduced, but tax authorities appear interested in reviewing tax-optimised incentive plans.

II TAXATION

i Income tax for employees

Residents2 and non-residents are treated differently for tax purposes. The worldwide income of persons resident in Finland is subject to taxation in Finland. Non-residents are taxed only on Finnish-sourced income. The applicable tax rates are also different.

Income from employment is considered to be Finnish-sourced income if the employer is a Finnish entity,3 and if the employment has been physically carried out in Finland completely or for the most part. Employment income is not Finnish-sourced (and hence not subject to tax if received by a non-resident) if the employer is a foreign entity. The same applies even in the case of a Finnish employer, if the work has mainly been carried out abroad.4 Remuneration paid to members in the board of executives of a Finnish company is taxable in Finland irrespective of whether the meetings have been held in Finland or overseas. It should be noted that Finland does not generally apply the economic employer approach, and the starting point is that foreign group companies of a Finnish company qualify as foreign employers under the aforementioned rules.

The earned income of a tax-resident individual is taxed at progressive tax rates of up to approximately 55 per cent, while salaries paid to a non-resident are subject to a flat withholding tax of 35 per cent, if subject to tax in Finland.5 The capital gains and other capital income of a Finnish tax resident are taxed at rates of 30 per cent for capital income up to €30,000 and 34 per cent for capital income exceeding €30,000. Capital gains received by non-residents are in many cases exempt from Finnish taxation.

Generally, there is a broadly applicable substance-over-form principle in the Finnish taxation system, and progressive employment income taxation covers any payments regarded as compensation for employment. It is therefore difficult to structure a compensation plan in such a way that the compensation would qualify for taxation as capital income. Capital income taxation should be applicable only in genuine arm’s-length investments (e.g., in the employer company’s shares) by the employee.

Qualification of the executive share ownership under the capital income taxation regime has sometimes been sought through arrangements involving heavily leveraged holding companies. Such a holding company would be owned by the executives, often receiving loan funding from the employer company and investing in the employer company’s shares. Such management holding company arrangement by a listed company was considered tax avoidance in a recent Supreme Administrative Court ruling leading to earned income taxation of the benefits received from the arrangement.6

Taxable income is, as a main rule, triggered in the taxation of individuals when the income is paid to the individual or when the individual gains control over the income in question. Employees gain control over deferred income items, for example, when they have the opportunity to choose, upon salary payment, whether certain items are paid directly to them as cash payments or into deferred account arrangements. If there is no possibility to opt for a cash payment or otherwise dispose of the funds, a tax-effective deferral of the income item may be accepted, if properly structured and taxable income is triggered only at the point when the deferred income is paid to the employee.

Option

Restricted stock

Restricted stock unit (promise to deliver stock in the future)

Tax treatment upon grant

None

Fair market value at grant taxable as earned income at progressive rates*

None

Tax treatment upon vesting

None

None

None

Tax treatment upon delivery

Spread taxable as earned income at progressive rates

None

Fair market value taxable as earned income at progressive rates

Tax treatment upon sale of underlying shares

Capital gains taxation at rates of 30–34%. Amount taxed as earned income deductible as acquisition cost

Capital gains taxation at rates of 30–34%. Amount taxed as earned income deductible as acquisition cost

Capital gains taxation at rates of 30–34%. Amount taxed as earned income deductible as acquisition cost

* Typically no possibility for downward adjustment, if the share price decreases

ii Social taxes for employees

Persons covered by Finnish social security are generally subject to Finnish social security contribution obligations. Employees covered by the social insurance system of another state and seconded to Finland may be exempt from Finnish social security contributions. The contributions applicable to employment in Finland are uncapped. The currently applicable payment percentages are as follows (2017 figures):

Employer

Healthcare charge

1.08%

Pension insurance contribution in the average

17.95%

Accident insurance contribution in the average

0.80%

Unemployment insurance contribution

0.80–3.30%

Employee

Group life insurance contribution in the average

0.07%

Pension insurance contribution

6.15% (for employees who are 17–52 years of age or 63–67 years of age); 7.65% (for employees who are 53–62 years of age)

Unemployment insurance contribution

1.60%

Employee’s healthcare charge (included in tax withholding percentage)

0.00–1.45%

Employee’s daily allowance contribution (included in tax withholding percentage)

1.58%

Benefits from share-based incentive plans may in many cases be exempt from most social security contributions in Finland.7 This exemption may apply to benefits from an employment stock option plan or a phantom option plan. It may be applicable also to shares granted to employees, provided that the shares granted are listed on a stock exchange and there is a vesting period of at least one year between the promise of the award and the actual award of the shares to the employee.8

iii Tax deductibility for employers

Costs accrued due to employment are generally fully deductible for the employer, even in cases where costs are due to employment of the senior management of the company. The employment cost item is deductible in the corporate income taxation of the employer company in the tax year during which the work in question was carried out. The year of payment of the compensation item does not determine the tax year applicable to the deduction in the employer’s corporate income taxation.

Special rules govern deductibility of costs for shares used to settle share-based incentive plans, considerably limiting the employer’s right to deduct such costs. The issue of new shares to settle an incentive plan does not give rise to a deductible cost in the corporate income taxation of the Finnish employer company issuing the shares. If existing shares of the company are used to settle the benefits under the plan, a deduction may be available if the shares used have been obtained from the stock exchange.9 However, a recharge of costs due to a share-based incentive plan paid by a Finnish employer company to a group company abroad operating the plan should, as a starting point, be fully deductible, regardless of whether new or existing shares of the foreign group company have been used.

iv Other special rules

There is a specific 35 per cent flat rate tax regime applicable to expert-level expatriates moving to Finland that may apply during the first 48 months of their stay in the country. The applicability of the regime has to be carefully planned, as a non-fulfilment of the technical requirements10 for qualifying may easily prevent the applicability. It should be noted that in contrast to the normal progressive taxation of employment income, no deductions are allowed under this regime.

Pension benefits of executives that exceed the mandatory pension cover, are normally arranged by means of a collective pension scheme, which allows fairly flexible insurance terms and full deductibility of the pension insurance payments by the employer in calculating its corporate income taxation, while not triggering any taxable income to the executives prior to the payment of the pension benefits to them upon retirement. At least two persons must be covered by the pension insurance for this tax treatment to be applicable.11

A voluntary health insurance taken by the employer for the benefit of employees generally gives rise to taxable income to insured employees unless the insurance covers all employees and offers all employees benefits at a similar level. Life insurance payments paid by the employer for the benefit of employees do not trigger taxable income for the employees if the insurance is purely risk insurance. Insurance payments made to a unit-linked life insurance policy constitute taxable income for the insured employee.

III TAX PLANNING AND OTHER CONSIDERATIONS

Personal service company arrangements and other similar structures are used to some extent in Finland in the tax-planning of remuneration paid to senior executives. There is, however, a quite well-established practice in Finland to pierce through minor consultancy firms and to tax the consultancy proceeds as the salary (or board fee, as the case may be) of the person carrying out the consultancy tasks in practice, if the arrangement is considered as de facto employment of the consultant by the client company. This may be the case especially if the person carrying out the consultancy tasks has previously been employed by the company purchasing the consultancy services, if the consultancy firm has no other clients of importance, or if the consultancy firm is very small. According to recent Supreme Administrative Court case law and tax authorities’ guidelines, remuneration for services as a CEO or a board member may not be accepted as income of a consultancy company, but it is personal earned income of the CEO or board member.

There may also be planning possibilities when determining the timing of the entry into Finland and the departure from Finland. According to the Finnish rules, the foreign income referring to the part of the year prior to the commencement of tax residence or after the cessation of tax residence enjoys full exemption and is not taken into account when determining the progressive tax rate applicable to the income taxable in Finland. A well-planned timing of arrival and departure may hence significantly cut the progressive tax rate applicable to the part of income taxable in Finland in the year of arrival or the year of departure. In addition, various split salary arrangements may offer planning opportunities if executives are working only a part of their working days in Finland and the other part, for example, in another Scandinavian country.

IV EMPLOYMENT LAW

i General

The Finnish Employment Contracts Act (ECA)12 is applicable to most employment relationships in Finland. Managing directors of limited liability companies are, however, excluded from the scope of the ECA. The terms of assignment for managing directors are determined by the service contract between the director and the company. In addition, the Companies Act regulates the managing directors’ position as an organ of the company. In practice, most of the agreed terms of assignment of managing directors do not, however, differ to a large extent from those of other executive directors.

The ECA provides for a loyalty obligation for employees, according to which employees must avoid everything that conflicts with actions reasonably required of an employee, considering the employee’s position. In addition, the ECA explicitly prohibits competing activities. During the term of employment, an employee must not work for other employers or engage in activities that would apparently cause harm to the employer as a competing activity contrary to fair employment practices. The nature of the work and the position of the employee are taken into account in this assessment. In the event of a breach of a non-competition obligation, the employer may claim damages from the employee for any losses caused by the breach. Furthermore, an employer may be liable to pay damages jointly with a new employee if the employer knew upon recruitment that the new employee was precluded from working on the basis of a non-competition covenant.

ii Non-competition and non-solicitation obligations

The ECA sets limits to non-competition undertakings applicable after expiry of employment. Under the ECA, a non-competition undertaking may limit the employee’s right after the end of the employment relationship to conclude an employment contract with an employer engaged in operations competing with the previous employer, and also to be otherwise engaged in competing operations, either directly or indirectly.13 A non-competition obligation should always be supported by particularly weighty reasons in order to be valid.14 In practice, a non-competition clause is typically included in management level contracts.

When assessing the particular weight of the reason for a non-competition clause, one of the criteria taken into account is the nature of the employer’s operations and the need for protection of trade secrets.15 Special training given to the employee by the employer and the employee’s status and duties must also be taken into account.

The prohibited activities may be restricted to cover only a certain geographical area or certain parts of the employer’s business. It is also possible to limit the restriction to cover activities with specified competitors, or to cover specific products or services of the employer.16

A non-competition clause may, under the ECA, restrict the employee’s right to conclude a new employment contract or to be engaged in the trade concerned for a maximum of six months. If the employee receives reasonable compensation for the restrictions imposed by the non-competition clause, the maximum duration of the restriction is one year. Based on legal practice, the level of reasonable compensation in such cases is set at a minimum of 50 per cent of the normal salary for the full duration of the restricted period. The compensation is typically paid either as a lump sum or in monthly instalments after the end of employment.

In cases of a breach of the non-competition covenant, the employee may be liable to pay either damages for loss, or alternatively the agreed contractual penalty. The level of such penalty may not exceed the amount of salary received by the employee for the six months preceding the end of the employment relationship.

According to the ECA, a non-compete clause that does not comply with the above is void. If the duration of the restriction or the amount of contractual penalty exceeds the maximum amount provided by law, the restriction does not apply for the part by which it exceeds the limits set by the ECA.

The restrictions related to the duration of a non-competition undertaking and the maximum contractual penalty do not, however, apply to employees who, in view of their duties and status, are deemed to run an enterprise or an independent part thereof, or to have an independent status comparable to such managers. Even if the restrictions on the duration of the non-competition and level of contractual penalty provided for in the ECA are not applied to the aforementioned managers, terms unreasonably restricting competition are prohibited under the Contracts Act.17 Therefore, a contract under which a person, in order to prevent or restrict competition, has undertaken not to engage in a certain activity or not to conclude an employment contract with another person engaging in such activity may not bind a party who has made such a promise to the extent that it unreasonably restricts his or her freedom. In practice, the non-competition undertakings applicable to managers rarely exceed 12 months in duration; the amount of contractual penalty is also usually within the range set in the ECA. Managing directors of large companies form an exception to this rule.

The term of a non-competition undertaking applicable after employment is calculated as of expiry of the notice period. Therefore, a release from duties during a notice period does not affect the duration of the non-competition undertaking. A non-compete clause is not, however, applicable if the employment relationship has been terminated for reasons deriving from the employer. A non-competition covenant is thus not enforceable, for example, in the case of collective redundancies.

Finnish law does not recognise the concept of non-solicitation. Based on legal practice, however, a non-solicitation clause restricting the solicitation of clients or employees of the former employer has been considered to correspond to a non-competition undertaking. Therefore, a non-solicitation obligation can only be enforced when particularly weighty reasons related to the operations of the employer are at hand and the restrictions regarding its application correspond to those set for non-competition covenants.

In the case of a transaction, non-competition covenants applicable in the employment relationship remain in force as such. It should be noted, however, that the presence of the particularly weighty reasons referred to above is determined on a case-by-case basis (see footnote 14). Based on recent legal practice, courts tend to interpret non-competition obligations restrictively, or even conclude that the weighty reasons needed for a non-competition obligation to be possible do not exist. A non-competition obligation should therefore always be drafted carefully to suit the particular case in question.

In situations where an employee is also a shareholder, or where a former shareholder continues to be employed by the company after the sale of his or her shares, the shareholder agreement or transactional documentation may impose a non-competition undertaking exceeding the limits in duration and the maximum contractual penalty set by the ECA. The assessment of the fairness of the restrictions relating to the separate non-competition undertakings in shareholder or transactional agreements must then be made on a case-by-case basis, based on the general prohibitions of unfair terms of contract and restricting competition.

iii Termination of service relationship

Managing directors of Finnish companies are not covered by the restrictions related to the termination of employment of employees. All other employed executives are covered by applicable employment legislation and the provisions on termination of employment relationships.

An employment relationship can be terminated based on an agreement, or based on a notice from either party. Employment legislation in general does not regulate termination of an employment relationship with an agreement. Owing to the mandatory nature of provisions in the ECA, a company cannot, however, freely agree with the employee on all issues related to termination of employment.18 Instead, general standards of reasonableness will limit the contents of such an agreement regarding both managing directors and employees. A typical clause of such an agreement is a release of claims against the employer.

For an employer to be able to terminate an employment contract legally, valid and weighty grounds for termination are required, which may be either organisational or related to the employee. When assessing whether sufficient grounds for termination exist, the situation is always evaluated as a whole, taking all relevant factors into account.

Organisational grounds relate to the economy, production or organisational change of the employer company. Employment can be terminated if work available has diminished materially and permanently. Valid organisational grounds are not considered to exist in a situation where the employee can be offered other duties that are suitable for his or her training and skills, or where the employee can reasonably be trained in new duties.19 The ECA also lists other situations where valid organisational grounds are not deemed to exist.20

With regard to termination grounds related to the employee, the grounds for termination must be ‘weighty and proper’. The concept is not defined in the ECA; rather, the ECA includes a list of reasons that do not fulfil this requirement. Employees who have neglected their duties or have breached their terms of employment may normally not be given notice before they have been specifically warned and have thus been given a chance to change their conduct.21 The warning should specifically refer to the possible termination of the employment relationship if similar problems continue.

Constructive termination or voluntary termination for ‘good reason’ as concepts are not defined in the ECA, but the issue is recognised.22 Cases of voluntary termination for good reason are, once the employee has shown it probable that a good reason for terminating the employment relationship exists, treated as cases of unfair dismissal. The number of cases where voluntary termination for good cause is claimed to exist has been on the rise during recent years. Likewise, the number of cases relating to harassment and unfair treatment of employees in general has risen.

Severance payments to employees are not mandatory under Finnish law. Often the employer will pay voluntary severance in addition to salary for the notice period. The amount of severance varies greatly depending on the position of the employee and the type of business in which the employer operates, and also depending on the general economic and organisational situation of the company.

Change of control as such is not a ground for terminating employment contracts. In a transfer of business, however, employees are entitled to terminate employment relationships applying a specific, shorter notice period.23 The transfer of employment to a new owner in connection with a corporate transaction will not give rise to a severance payment if the employee terminates the employment relationship, and no custom regarding payment of such severance exists.

All companies that employ at least 20 employees in Finland24 on a regular basis must follow a specific negotiation process before decisions to terminate employees’ contracts based on economic or organisational reasons are taken.25 There is no limit regarding application of the process based on the number of employees who would be given notice of termination, and this process must thus also be followed when the organisational reason relates to just one employee in a senior executive position. The process does not relate to termination of employment, which is made based on agreement between the employer and the employee.

V SECURITIES LAW

The Finnish Securities Markets Act (SMA)26 provides that an issuer of securities, as well as the manager of an offering, is responsible for preparing and publishing a prospectus when offering shares to the public or listing shares on a stock exchange. There are exemptions from the obligation to publish a prospectus and these relate, inter alia, to the offering of shares to directors or employees. The publication of a prospectus is generally not required if securities are offered to existing or former directors or employees by their employer or by an affiliated undertaking, provided that the requirements set out in the SMA are met.27 The issuer of the shares is still required to make adequate information available to all offerees regarding the factors that may affect the value of the offered securities so that they are able to reasonably assess the feasibility of the investment.

There is no legal requirement in Finland for an executive to hold stock of their employer, but shares or option rights commonly form part of executive remuneration. Executives buying or selling shares of their employer entity on the public market must comply with the relevant public trading rules. In particular, executives that have been defined by the listed company as persons discharging managerial responsibilities under the EU Market Abuse Regulation (MAR)28 must comply with the rules regarding closed-window and insider trading.29 In addition to the members of the board of directors and the managing director, such persons usually include the chief financial officer and other senior executives, as deemed appropriate.

According to the MAR, all persons discharging managerial responsibilities and their closely associated persons must notify the company of every transaction relating to the company’s shares, options and other financial instruments. The company in turn is required to disclose such information as a stock exchange release. The company is responsible for maintaining a list of such persons.

There are no specific short swing-trading or anti-hedging rules related to executives in Finland. However, many listed companies recommend that the persons discharging managerial responsibilities do not actively trade in the shares or financial instruments of the company or engage in short-term trading or speculative transactions, but rather make investments in the company on a long-term basis.

In addition, according to the SMA, executives and the company are subject to an obligation to publicly disclose a flagging notification if their holding in the company reaches, exceeds or falls below the thresholds set by the law.

There are no restrictions regarding executive shareholding in private companies.

VI DISCLOSURE

The SMA, MAR and the rules of Nasdaq Helsinki Ltd regulate the disclosure obligations of listed companies. In addition, the Finnish Corporate Governance Code 2015 (Code) includes provisions regarding, inter alia, the disclosure of information related to remuneration. Even though the Code is based on the comply-or-explain principle,30 no departures from reporting of the required information are allowed. The provisions of the Code apply to listed companies, irrespective of their size.

According to the Code, listed companies must publish a remuneration statement on their website, containing an up-to-date description of the decision-making procedures and main principles concerning the remuneration of the directors, the managing director and the other executives,31 as well as a report on remuneration paid during the previous financial period. Information regarding decision-making procedures and main principles concerning remuneration must be updated regularly so that the information on the website is as up to date as possible, and the report regarding remuneration paid during the previous financial period must be updated annually.

In the remuneration statement, a listed company must disclose the main principles for the remuneration schemes covering the company’s managing director and other executives.32 In addition, the financial benefits of the managing director must be disclosed in detail, but disclosure of the personal benefits of other executives is not required; aggregated information is sufficient. There is no requirement to keep the agreement with the managing director publicly available in its entirety as long as the required information is made publicly available in accordance with the Code.

The Code does not contain any materiality thresholds regarding the obligation to disclose information on remuneration. Neither the Code nor the legislation requires that the value of the incentives be estimated as long as the required information is presented.

The remuneration statement must also include information about the valid authorisations of the board of directors concerning the remuneration, as well as any decisions made at a general meeting or by the board of directors pertaining to remuneration. In addition to the foregoing, the company must, in accordance with the rules of Nasdaq Helsinki Ltd, disclose a decision to introduce a material share-based incentive programme by way of a stock exchange release setting out the most important terms and conditions of the programme.

VII CORPORATE GOVERNANCE

The Finnish Companies Act33 and the articles of association of the company set the basis for the corporate governance of both public and private companies. In addition, the Code seeks to maintain and promote good practices of listed companies and harmonise the procedures with regard to corporate governance and remuneration. Finnish companies listed on Nasdaq Helsinki Ltd must comply with the Code, but a company with some other domicile than Finland shall generally follow the corporate governance recommendations that are applied to it in its home state.

The body that appoints a person to his or her position must decide on his or her remuneration. Thus, the general meeting of shareholders decides on the remuneration payable for board and committee work as well as on the basis for its determination. The board of directors decides on the remuneration and other compensation to be paid to the managing director. The company must specify the decision-making procedure for the remuneration of the other executives; this is usually the responsibility of the board of directors.34 If remuneration is to be granted in the form of shares or option rights, the general meeting of shareholders must either approve such issue of shares or option rights, or authorise the board to do so.

According to the Code, the board of directors may establish a remuneration committee to prepare matters pertaining to the remuneration of the managing director and other executives as well as the remuneration principles observed by the company. The remuneration committee must have at least three members, who must have the expertise and experience required by the duties of the committee; the majority of the members of the remuneration committee must also be independent of the company. The managing director or other executives of the company may not be appointed to the remuneration committee.35

In Finland, there are no union or works council approval requirements that need to be met in relation to remuneration of executives. Further, there are no specific provisions related to clawback or recoupment of remuneration previously paid. However, remuneration that has been paid out without grounds should be reclaimed in accordance with the general regulations on returning an unjust enrichment.

Say-on-pay is not as such applied in Finland (i.e., there is no requirement to bring a management remuneration programme or decision relating to the remuneration to the general meeting, or any requirement to seek the opinion of the general meeting). Shareholders may, however, use their right to ask questions at the general meeting relating to the information contained in the company’s remuneration statement.

VIII SPECIALISED REGULATORY REGIMES

i State-owned companies

The state is the majority owner or a significant minority owner in many Finnish companies. The ministry responsible for ownership steering makes decisions on most issues concerning ownership steering and use of shareholder authority; government approval of executive remuneration arrangements is thus not required. The government has, however, in recent years been interested in the remuneration policies applied in state-owned companies, and has issued guidelines in that respect. Latest changes in the remuneration framework for state-owned companies include that the companies shall describe their remuneration policy at their annual general meetings and justify the realised performance bonuses; the total amount of variable remuneration shall have a maximum limit within which the company’s board of directors decides on the short-term and long-term remuneration schemes; executive severance packages shall be reduced; and the management and personnel of listed companies are encouraged to buy shares in their own company.36

Based on approved guidelines, increased consideration is being given to transparency as well as to the varying business environments and ownership structures of state-owned companies. Bonus systems must primarily be target-based, and the amount of the bonus must correspond to the specific attributes of the company. All bonuses shall include conditions according to which they can be cancelled or adjusted. Although decisions on remuneration are made by the companies, the state does not approve of the use of options or other measures requiring the issue of new shares or supplementary pension benefits.

ii Specific business sectors

There are specific rules relating to executive remuneration in the financial sector; Finnish rules apply to most financial institutions, such as credit institutions and investment service firms in general, as well as to mutual fund management companies and alternative investment fund managers.37 The rules restrict the awarding and payment of variable remuneration to senior staff members of the regulated entities as well as members of staff who, in their position, may materially affect the risk profile of the relevant entity, members of control functions and staff members who receive remuneration of the same magnitude as members of the management and risk-takers.

Awards and payment of variable remuneration to the above-mentioned members of staff must be aligned with the performance and financial condition of the relevant entity and the performance of the relevant staff member. The entity must have in place remuneration policies and practices whereby the payment of a significant part (at least 40 per cent) of variable remuneration must be deferred for a period of between three and five years of the end of the period during which the remuneration was earned, at least one-half of the remuneration must be paid otherwise than in cash (i.e., in financial instruments linked to the equity of the entity or group company), and the disposal of such instruments must be subject to a lock-up period.38

IX DEVELOPMENTS AND CONCLUSIONS

Remuneration of top executives and tax-beneficial arrangements related to high remuneration continue to be topics subject to sharp discussion in the Finnish media and by politicians also in cases where there is no question that such arrangement is legally acceptable.39 Another interesting development is the recent case law of Finnish courts regarding the applicability of non-competition obligations. Based on recent Finnish Supreme Court precedent, a non-competition obligation restricting an executive from pursuing a career in a competing business after the executive contract has ended needs to be drafted carefully to protect the relevant business interests and know-how of the company, which cannot be protected by other less restrictive methods (e.g., a confidentiality undertaking).

1 Johanna Haltia-Tapio is senior counsel, Lauri Lehmusoja is counsel and Anniina Järvinen is a senior associate at Hannes Snellman.

2 An individual is deemed a resident of Finland if the permanent home and abode of such a person is in Finland or if such person stays in Finland for a continuous period of more than six months. A Finnish citizen who has moved abroad is considered to be a resident of Finland until three years have passed from the end of the year of departure, unless it is proven that no substantial ties to Finland existed during the relevant tax year.

3 A Finnish permanent establishment of a foreign entity is treated similarly to a Finnish entity in this respect. Specific rules apply with respect to the taxation of individuals employed by the Finnish government or other Finnish entities of public administration.

4 The assessment of whether the majority of the work has been carried out in Finland is made separately for each salary payment period (typically monthly).

5 However, it is possible under certain conditions for non-residents to request their earned income to be taxed at progressive tax rates instead of the 35 per cent flat tax at source.

6 It remains to be seen whether similar disputes will arise even in companies related to private equity funds, where similar co-investment arrangements have also been used. Carried interest paid in private equity fund context has in recent case law been considered to not constitute salary income – there were, however, some specific circumstances in the said cases and the outcome could hence be different in future cases if the circumstances differ.

7 The employee’s healthcare charge of 0.00–1.45 per cent is, however, always payable.

8 The social security exemption rules concerning a grant of shares to employees are somewhat less strict if shares have been granted to the majority of the company’s employees.

9 In cases where a deduction is available, there are, furthermore, specific rules limiting the maximum deductible amount.

10 The requirements to qualify for the regime include a monthly cash salary of at least €5,800, a non-Finnish nationality of the employee in question and a specific application that has to be filed within 90 days from the beginning of employment in Finland. The actual paid cash salary has to meet the €5,800 threshold each month, which has to be taken into account, for example, when planning unpaid leave.

11 It should be noted that granting additional pension benefits to executives may in some circumstances include a negative publicity risk, as such arrangements have been scrutinised and viewed very critically in the Finnish press recently. The Finnish government has also issued a general guideline that no new additional pension benefit arrangements should be made to executives in state-owned enterprises.

12 55/2001.

13 As the ECA does not generally apply to managing directors, the terms of non-competition obligations can be agreed more freely.

14 The employer has the burden of proving that the specific, weighty reasons related to the employee’s position, or the company’s operations, do exist. The reasons need to exist both at the time when the non-competition obligation is agreed and at the time when the employer refers to the obligation – that is, when the employment relationship has been terminated. The fact that weighty grounds exist at the time of termination is not sufficient if at the time of entry into the agreement the grounds were not considered weighty enough.

15 Based on recent case law the existence of an extensive confidentiality obligation in force also after the expiry of employment may in certain cases be considered a sufficient means for protecting the employer’s interest, as a consequence of which weight grounds for enforcing a non-competition undertaking have not been considered to exist.

16 In addition to actual competing activities, preparations for such activities, such as the establishment of a company intended to be involved in competing activities, may also be prohibited. For preparatory actions to be considered prohibited competing activities, an intention to harm the employer is usually required.

17 228/1929.

18 Regarding an executive in the position of an employee, it is, based on legal practice, not possible to agree that the company will not have the re-employment obligation (exceptionally, this would be possible under specific collective bargaining agreements). The re-employment obligation relates to situations where employment has been terminated for organisation-related reasons.

19 The company’s size and other factors are taken into account when evaluating what is reasonable, but in general the training would only amount to a few days or, at the most, weeks.

20 These include the employer having employed, either before or after the notice of termination was given, a new employee to carry out tasks similar to those that the redundant employee had even though there has not been a material change in the operating circumstances related to the company; and where the reorganisation of the work at the company has not led to the work at the company actually diminishing.

21 If the breach is so serious that the employer cannot reasonably be expected to continue the employment relationship, no warning needs to be given. In even more serious cases where the breach is so severe that the employer cannot be expected to continue the employment relationship even for the notice period, the employer may terminate the employment without notice. This would typically relate to serious violence at the workplace, theft or similar breaches.

22 The situation comes up when an employee terminates the employment relationship without notice and claims that the employer has breached its obligations related to the employment relationship so severely that the employee could not reasonably be expected to work even for the length of the notice period.

23 The employee is entitled to terminate the employment relationship to end on the date the business is transferred to the new owner, if he or she has received information on the transfer at least one month before the transfer date. If the employee has received the information later, he or she may terminate the employment relationship to end either on the transfer date or on another date not being more than one month from the date on which the employee received the information about the date of transfer.

24 The managing director of the company is not counted as an employee.

25 The process is specified in the Act on Co-operation within Undertakings (334/2007). Under the Act, the company risks paying a compensation of a maximum of €34,519 to each employee whose employment has been terminated or changed to part-time employment without following the negotiation process (see Chapter 9, Section 62).

26 746/2012.

27 The publication of a prospectus is generally not required if securities are offered to a limited number of existing or former directors or employees by their employer or by an affiliated undertaking provided that the company’s registered office is in an EEA member state and, if seeking admission of such shares to trading on a regulated market, provided that the securities of the company are already admitted to trading on the same regulated market. A further requirement is that a document containing information on the number and nature of the securities as well as the reasons for and details of the offer shall be made available. The new EU Prospectus Regulation (EU) 2017/1129 includes further exemptions from the obligation to publish a prospectus in connection with listing of shares on a stock exchange, applicable as of 20 July 2017, and offering of securities to the public, applicable as of 21 July 2018.

28 596/2014.

29 The MAR, related EU regulations and the Guidelines for Insiders of Listed Companies issued by Nasdaq Helsinki Ltd contain more detailed provisions on the insider issues.

30 The company must comply with the recommendations of the Code or disclose a possible departure from an individual recommendation together with an explanation for the departure.

31 In the Code, the term ‘other executives’ refers to the members of the company’s management team or, if the company has no management team, to the executives specified by the company.

32 According to the Code, the disclosure shall include, inter alia, the division of the remuneration into fixed and variable components (short-term and long-term incentives), information on the determination of the variable components of the remuneration and the limits set on them, criteria on the basis of the remuneration and the impact of the criteria on the company’s long-term financial success, information on share-based remuneration schemes as well as relevant earning and restriction periods, compensation payable due to the termination of an employment or a service contract, and additional pension benefits, if any.

33 624/2006.

34 The national implementation of the new EU Shareholders’ Rights Directive (2017/828) may lead to changes in the manner executive remuneration is decided upon. The deadline for national implementation is 10 June 2019.

35 Recommendations 15 and 17 of the Code.

36 On 13 May 2016, the government made a resolution on state ownership policy in order to further develop and reinforce the state ownership policy and ownership steering. The resolution also contains a statement by the Cabinet Committee on Economic Policy on remuneration. The salaries and remuneration paid to the management are governed by criteria based on the long-term financial performance and overall success of the company, and on moderation.

37 Provisions related to remuneration are included, inter alia, in the Act on Credit Institutions (610/2014) and statements on remuneration practices issued by the Finnish Financial Supervisory Authority, dated 17 February 2010 and 11 January 2011. The Finnish Financial Supervisory Authority recommends that all entities defined as ‘supervised entities’ by Section 4 of the Act on Financial Supervisory Authority (878/2008) comply with the statement on remuneration practices, to the extent there is no specific legislation applicable to the entity.

38 Deferred remuneration may become payable at once at the end of the deferral period or pro rata during the life of the deferral period. As regards fund managers and management companies, the applicable deferral period depends also on characteristics (e.g., recommended holding period and risk profile) of the fund units which form part of the remuneration.

39 As regards future development, EU’s second Directive on Markets in Financial Instruments (2014/65, MiFID II) seeks to further reduce and prevent potential conflicts of interest between investment companies and their clients arising out of remuneration policies. At the time of the writing, implementation of MiFID II is still pending in Finland.