Cash News
TERHI JÄRVIKAREthe director of the tax division at the Ministry of Finance, on Monday revealed that the ministry is intent to examining the utilisation of holding companies as a tool for tax avoidance at the end of the autumn, reports Helsingin Sanomat.
Earlier yesterday a proposal for prohibiting the much-discussed arrangement was called for by Anita Isomaathe director of tax affairs at the Confederation of Finnish Industries (EK).
“The much-discussed share exchange into a holding company and the outcome of the arrangement does not align with lawmakers’ intentions. This defect created by juridical practice could easily be rectified,” Isomaa wrote on X, pointing to an analysis by Helsingin Sanomat.
The newspaper reported that the arrangement has been adopted rapidly by various companies as business owners have realised that the government has not taken action to address what is a feature of the tax code that is unique to Finland.
The feature enables unlisted companies to annually pay out up to 150,000 euros in dividends per shareholder, while the payout is taxed at less than a third of the rate imposed on dividends paid out by listed companies. If the dividends account for no more than eight per cent of the computational value of the company, three-quarters of the payout is exempt from taxes and one quarter is subject to the capital gains tax.
The owners of unlisted companies have taken full advantage of the feature by setting up a holding company, transferring their shares to the holding company and inflating the value of the holding company with revenue projections, a trick that was approved by the Supreme Administrative Court in 2017.
The Ministry of Finance calculated two years ago that the tax expenditure arising from the feature adds up to 830 million euros, adding that the beneficiaries are almost entirely people from the highest income decile.
The arrangement has been the topic of constant discussion since last year. Finnwatch at the time revealed that several social media influencers have utilised the arrangement to reduce their tax burden. Its report drew calls for lawmakers to plug the loophole, including from Finland Chambers of Commerce.
The Finnish responsibility watchdog yesterday welcomed news that the loophole would be scrutinised at the Ministry of Finance.
“Even though we are celebrating today, we are not yet over the finish line,” reminded Sonja Finérthe executive director at Finnwatch. “For it is not enough to ‘examine the matter’. What is needed is a political decision to also fix the problem. And when it is fixed, the provisions have to be formulated in a way that they also work in practice.”
Minister of Finance Riikka Purra (PS) declined to comment on the issue on Monday.
Järvikare denied Helsingin Sanomat’s report that the minister has not given officials permission to draft a proposal to rectify the problem but also confirmed that the minister has not ruled that the problem should be tackled or examined by the tax division.
“No permit has even been asked from minister Purra because the tax division’s resources have been tied up in other urgent projects,” she wrote on X.
Aleksi Teivainen – HT