Finnish Government Introduces Tax Avoidance Measures In Its Tax Plan

; posted on
June 6th, 2019

Finland's newly formed center-left government is reportedly planning a number of tax measures to raise an addition EUR 730 million in tax revenue to fund increased spending. The government is also studying possible measures to reduce international tax planning and avoidance, broaden the corporate tax base, and tax dividends and real estate gains of foreign funds and other exempt entities.

Measures on corporate taxation

As one of the prominent measures in their recent tax plans, Finland will support measures which aim to combat tax avoidance and the functioning of tax havens at both EU and global levels. Finland will renegotiate its bilateral tax treaties if needed to prevent tax avoidance and to ensure that corporate profits are taxed at least once in a transparent manner. Companies of which the state is a majority shareholder will report the taxes paid country-by-country as part of their corporate responsibility reporting with the aim of encouraging other companies to do so.

In addition to the anti-avoidance measure, an economic employer concept will be introduced in order to combat structures under which formal employment is exercised in Finland for a foreign employer. Hidden profit distributions will become fully taxable.

With regard to other international tax measures, the Finnish government will broaden the corporate tax residency rules. Accordingly, an entity is resident in Finland if it is established in accordance with Finnish law, its place of residence is registered in Finland or its place of effective management is in Finland.

Other corporate tax measures are as follows:

  • The deductibility of final losses made by foreign subsidiaries is made possible.
  • The provision enabling transfer pricing adjustments will be amended so that it is in line with OECD Transfer Pricing Guidelines.
  • The government will assess whether to 1) introduce a 5% withholding tax on dividends paid to foreign investment funds and other entities which are currently exempt from withholding tax with effect from 2022; 2) amend the CFC legislation in order to combat aggressive tax planning more efficiently; 3) exclude Mankala companies and state-owned infrastructure companies from the scope of interest deductibility rules; and 4) introduce an ultimate beneficial owner concept in the legislation.

The newly introduced measures are claimed to raise an additional EUR 730 million in tax revenue to fund increased spending.

Source: Finnish Government

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