Legal Alert – Tax effects of the Governments budget framework for 2013-2016
The Finnish Government has agreed on the budget framework for the next four years. In order to balance the state economy, the Government has decided on economic measures of EUR 2,7 billion. 1,5 billion of the total amount will be raised by straining taxation and 1,2 billion by cutting expenses. The Government has also agreed on a supplementary budget which includes tax incentives to support economic growth.
Balancing tax measures
The majority of the balancing effects are carried out by an increase in VAT rate and by freezing the inflation adjustments of personal income taxation. The Governments decision to increase value added tax by 1 percentage unit is supposed to raise approximately EUR 750 million. Accordingly, the Finnish VAT rate will become 24 %, which is still below the Scandinavian average. For example Sweden and Denmark are already applying the EU maximum rate of 25 %.
As mentioned, the Government has also decided to freeze the inflation adjustments of the income tax to collect additional EUR 800 million. Tax burden has thus been calculated to be equivalent with the level of 2008-2009 income taxation. For those earning more than EUR 100,000 a year, a new solidarity tax will be introduced, i.e. the applicable marginal tax rate for those earning more than EUR 100,000 will become 1.5 percentage units higher. This will again widen the gap between the taxation of capital income and earned income.
Transfer tax rate for transfer of securities will rise from 1.6 % to 2.0 %, and the estimated additional income for the state due to this measure is supposed to be approximately EUR 80 million. As stock exchange is mainly transfer tax exempt, this amendment will affect trading of non-listed companies and apartment markets.
The Governments framework decision also includes an amendment to gift and inheritance taxation. Just three months after the latest amendment, the Government introduces yet another tax bracket for the gift and inheritance taxation. A new tax rate for gifts and inheritances exceeding EUR 200,000 is now followed by a new tax rate for those gifts and inheritances exceeding EUR 1 million. This will affect especially non-listed companies and entrepreneurs by making changes of generation harder.
Growth supporting tax measures
In its supplementary budget, the Government utilises tax incentives in order to support growth and employment. A new tax incentive for R&D actions, which grants tax compensation depending on the labour costs connected to the R&D operations, is one of these incentives. Another tax related measure is to accelerate investments by allowing double depreciations for a fixed term ending in 2014.
A so called venture capital incentive is introduced for individuals. An individual making a minority investment into a non-listed small-sized company will be granted a tax deduction in the year of investment. Another option is that the investors presumed acquisition cost will be increased to 50 % when transferring the shares. At the moment the presumed acquisition cost is 20 % for property owned for less than ten years and 40 % after that. Both R&D incentive and venture capital incentive is proposed to be applicable for a fixed term and both regulations will include certain minimum and maximum amounts of exploitation.
Other forthcoming tax measures include an increase in energy tax and restrictions in mileage allowance. Also a few measures already entered into the Governments program will soon become applicable. A so called bank tax will become effective in 2013 and a windfall-tax in 2014.
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