The government programme of the new Finnish government was published on 3 June 2019. Below we have compiled the main remarks regarding tax changes in the programme.
Corporate and dividend taxation
No changes are proposed to the current 20 % corporate tax rate since the goal is to have a tight tax base and low tax rates. Changes to the general dividend taxation system are not proposed either.
Significant additional restrictions were made to interest deductions at the beginning of 2019. The need for additional restrictions will be reviewed in the future, especially in relation to capital investment structures. The tax evasion regulation is also being reviewed in relation to capital investment structures, possibly thus resulting in restrictions on the use of different types of dummy corporations. In the same context, it will be considered whether the so-called Mankala companies (non-profit energy companies) and publicly owned infra-project companies could be left out of the scope of the interest deduction restrictions.
The regulation regarding group income smoothing will be reformed. The longer-term goal is to tax groups as one entity. The intention is also to improve the possibilities for deducting final losses of foreign subsidiaries in the taxation of the Finnish parent company.
Finland’s internal transfer pricing regulations are amended so that Finland can tax all income that the OECD Transfer Pricing Guidelines allow Finland to tax. Also, the OECD guidelines regarding allocating income to a permanent establishment are intended to be utilized more efficiently in Finnish taxation.
Support measures regarding small companies
The lower limit of value added tax liability will be raised from the current EUR 10,000 to EUR 15,000, subject to approval of the European Union.
The remuneration system for the personnel of unlisted growth companies will be implemented based on the previously prepared model.
As regards foreign funds and tax-exempt entities, it will be examined whether it is possible to apply a 5 % withholding tax at the source on the income which these entities gain from Finland. If the change comes into effect it could be applied from the beginning of 2022.
A provision will be added to the Income Tax Act (tuloverolaki), according to which a foreign entity may be considered a resident in Finland and generally taxable in Finland if its actual place of management is in Finland. At present, only a corporation registered in Finland can be considered a Finnish resident. The change will increase Finland’s power to levy taxes on foreign companies in some cases.
The Controlled Foreign Company Act (väliyhteisölaki) was significantly reformed at the beginning of 2019. Further reformation of the Act will be taken under consideration. The purpose is to prevent aggressive tax planning and make the functioning of tax havens more difficult, as well as to make the taxation of corporations’ foreign profits transparent.
If needed, the government plans to renegotiate the tax treaty regarding Finland to the extent necessary to secure Finland’s power to levy taxes.
So-called key person taxation will be made permanent. According to Finnish legislation, foreign key persons can benefit from the 35 % tax at source which is levied on their salaries.
The government will examine the possibility to extend the inheritance and gift taxation to concern situations where transfers take place between parties living outside of Finland, if the parties have previously lived in Finland.
Changes in taxation of real estate investments
The government will examine the possibility of collecting a reasonable tax on capital gains when a foreign fund or tax-exempt entity receives capital gains from a real estate investment located in Finland.
Regarding housing investments, the government will examine the possibility of limiting the deductions of company loan amortizations from rental income.
In real estate taxation, the aim is to have taxable values better correspond to the current values of the real estate. Real estate tax on offshore wind farms will be reduced.
Avoidance of tax evasion
Disguised dividends would become fully taxable income when at present only 75 % of the disguised dividend is taxable.
The government programme does not suggest a restoration of wealth tax but it does state that the growing inequalities in wealth need to be taken into account in taxation. This statement may relate to either the restoration of wealth tax or the tightening of inheritance taxation.
For more information, please contact Sebastian Kellas.