Alongside the budget proposal for 2022, the Finnish Government published a great number of new tax decisions in its budget session last week. We have put together a brief summary of some of the most significant tax measures that will take effect in 2022 and 2023 – will these affect your business as well?
Research and development expenses
The Finnish Government will support research and development activities with an additional tax deduction of 150%. The deduction will be applicable from the beginning of 2022 until 2027. This additional deduction can be made for research and development expenses that are based on research and development cooperation between companies and research organisations.
Machinery and equipment investments
The Finnish Government is extending the current accelerated depreciation rules for machinery and equipment until 2025. Under the current legislation, spanning from 2020 to 2023, double depreciations are allowed on new machinery and equipment purchased within the aforementioned tax years.
Capital gains tax or exit tax
To safeguard Finland’s tax base, the Government decided to introduce capital gains tax for individuals (i.e. appreciation tax, exit tax) that applies in situations where individuals move abroad from Finland. In brief, exit taxation means that gains on the sale of assets accumulated in Finland will be taxed in Finland even when assets are relinquished while living abroad. The reform will come into force at the beginning of 2023. However, further details of the implementation of exit tax are still open and will be specified during their preparation.
Corporations’ deduction for interest expenses
The revised provision on the limitation of deductibility of interest expenses will come into force at the beginning of 2022. The provision will be reformed by restricting the application of the balance sheet exemption so that the provisions effectively prevent the transfer of taxable income outside Finnish taxation in private equity structures.
Real estate investments of foreign funds
To strengthen Finland’s tax base, gains derived from the real estate investments of foreign funds will be taxed in Finland as broadly as possible from the beginning of 2023. The reform would allow Finland to tax the sale of real estate located in Finland even when the object of the transfer is a company that indirectly owns the real estate.
The revised transfer pricing adjustment provision will take effect from the beginning of 2022. The proposed legislative amendments would allow making transfer pricing adjustments to the full extent permitted by the OECD Transfer Pricing Guidelines.
Under the legislative proposal, the analysis of whether the actual transaction executed between the associated enterprises complies with the arm’s length principle should always include an accurate delineation of the transaction based on the economically relevant characteristics of the transaction. In exceptional circumstances, the transaction between the parties could be disregarded for transfer pricing purposes.
The mining tax is planned to be introduced in 2023. Of the targeted mining tax revenue of EUR 25 million, 60% will be directed to the municipalities where the mines are located. Alongside the changes to the mining tax, the Finnish Mining Act will be amended. The schedule, however, is yet to be confirmed.
The final model and the concrete method of implementation of the mining tax will be decided during its preparation. It is possible that the introduced model of mining tax could differ significantly from the conclusions of the mining tax report.
Further preparations are needed to ensure that the mining tax conforms with the existing tax system as well as to consider the economic impacts of the tax alongside the implications of the Finnish Mining Act Reform. In addition, the constitutional and EU law requirements relating to the fundamental freedoms and state aid rules should be assessed in connection with the preparation.
Be prepared for changes
In addition to the measures listed above, the Finnish Government decided on some other changes that will affect personal taxation, such as index adjustments, household deduction, deduction for home loan interest etc. and tax changes that aim at for instance climate-sustainability.
Although the Finnish Government’s tax decisions do not answer the questions regarding the concrete implementation of the proposed tax measures, we recommend preparing for the changes now, as they may affect your business.
We will continue to monitor any developments as the proposals proceeds towards implementation. If you have any questions regarding the matter, please feel free to contact any of Borenius’ attorneys listed in this alert or those with whom you usually work.