In Finland, hundreds of share exchange arrangements are implemented every year, the non-governmental organization found.
Owner company hundreds of share exchange arrangements aimed at minimizing taxation are made in Finland every year, according to a recent report by the non-governmental organization Finnwatch. According to Finnwatch’s report, approximately one in five of all advance rulings issued by the Tax Administration in 2020–2022 were related to share exchanges.
Share exchange arrangements and the related opportunity to minimize the owner entrepreneur’s dividend taxation came to the fore In a study published by Finnwatch at the beginning of September.
The study reviewed three case examples from the social media influencer field. Finnwatc’s report started a public debate about the reduced dividends of unlisted companies.
The spirit of the discussion was summed up by a social media influencer at the time Natalia Salmelan a sentence in which he justified the share exchange arrangement by saying that why wouldn’t he try to minimize his taxes, if “uncles and old men” are doing that too.
Read more: Natalia Salmela’s straightforward sentence revealed the core problem of taxation
Typically, in a share exchange arrangement, the company’s owners transfer the company’s shares to a new holding company so that the value of the transferred property can take into account its net assets as well as its future income value. Dividends are tax-free between companies.
In this way, the company’s net assets, which are the basis of reduced dividends, can be made bigger.
Read more: Emeritus professor: Social influencers’ tax gimmick is a “skewing of bias” against the spirit of the law
To be born in the aftermath of the conversation The Central Chamber of Commerce suggestedthat dividend taxation should be completely reformed at the end of this election period and that the reduction of dividend income based on the company’s net assets should be waived at the same time.
Also Suomen Yrittäjät proposed change in dividend taxation of unlisted companies. In their model, the gap in the tax base should be solved by lowering the tax so that relief would be given to all owners, regardless of the company’s net assets.
Finnwatch assesses that share exchange arrangements seeking tax benefits are implemented in many other sectors than social media companies, and that the number of arrangements aimed at minimizing taxation is increasing.
“The tax administration’s statistics on the total number of advance rulings related to share exchanges confirm this perception,” the organization says in a press release.
“However, the purposes of the arrangements are not clear from the statistics, and the figures also include arrangements planned for purposes other than the minimization of dividend taxes.”
Finnwatch wants the government to clarify the extent of the phenomenon.
“The risk that share exchanges will cause tax losses of millions of euros to society every year is obvious based on the total amounts of the arrangements. An even bigger social flaw is that the system treats taxpayers unequally,” says Finnwatch’s tax expert Saara Hietanen in the bulletin.
The government should launch a study to correct the legislation on share exchanges, Finnwatch suggests.
The most appropriate solution would be to fix the already problematic dividend tax relief, the organization says.
However, exact solutions could serve as a good temporary solution if it is possible to implement them technically, and an agreement on reforming the dividend tax system will not be reached quickly, Finnwatch adds.
Finnwatch says that he sent a survey about share exchange arrangements to various tax consultants, but no information was received from the consultants about the amount of arrangements implemented.
For example, KPMG, Deloitte, EY and PwC, which belong to Finland’s largest consulting firms, did not disclose the amount of share exchange arrangements they implemented, Finnwatch says.
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