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04/06/2019

Tax picks from the programme of the new Finnish government

By Antti Lehtimaja, Sanna Lindqvist

As a result of the government formation talks following the Finnish parliamentary elections held in April, an agreement on the new Government Programme for the next four years was published on Monday 3 June.

To give a flavour of the planned trends and future potential changes in taxation, we have selected the most important tax-related topics:

  • The general corporate income tax (20%) and general VAT (24%) rates remain the same.
  • The governmental programme contains several items for the broadening and tightening of the tax base and preventing tax avoidance and grey economy, such as:
    • Reviewing the sufficiency of CFC legislation and the limitations to the deductibility of interest expenses;
    • Extending general liability to tax also to foreign companies managed from Finland;
    • Continuation of international cooperation to prevent tax avoidance and unfair tax competition, taking into account the challenges set by the digital business forms on the traditional methods of taxation;
    • Broadening the Finnish transfer pricing adjustment rule to be aligned with the OECD transfer pricing guidelines;
    • Introducing the concept of economic employer for preventing artificial foreign employer arrangements; and
    • Reviewing withholding taxation of dividends received by domestic and foreign tax-exempt entities.
  • Supporting sustainable development through e.g. amending the energy and transportation taxation; introducing possible new tax forms supporting circular economy; considering possibilities of excise taxation taking into account climate and environmental effects; and increasing the taxation of mining activities.
  • The tax burden of earned income will generally remain as currently. However, certain alleviations for the low-income earners will be considered.
  • Health aspects will be taken into account e.g. by increasing the taxation of tobacco and alcohol and sugary drinks and products.
  • Real estate taxation is generally intended to be tightened (with the exception of e.g. sea wind power parks)
  • The list of alleviations to taxation is fairly short. Some examples: reviewing alleviations to interest deductions limitations on certain non-profit companies and public-owned infrastructure project companies; potential changes to taxation of groups of companies; implementing a specific relief on incentive schemes for employees of non-listed start-up companies.