Timo Harakka, the budget and finance spokesperson of the Social Democrats, has been at odds with employer organisations over a proposal to levy a tax on dividends paid abroad from Finland. (Vesa Moilanen – Lehtikuva)

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A NUMBER OF EMPLOYER ORGANISATIONS have pleaded with the parties participating in the government formation negotiations not to introduce a new withholding tax on institutional investors.

The Social Democratic Party has floated the idea of levying a withholding tax of five per cent on dividends received by institutional investors, saying it would create revenues of 250–500 million euros.

Anita Isomaa-Myllymäki, the director of tax affairs at the Confederation of Finnish Industries (EK), on Tuesday gave a presentation to the parties’ tax policy task force headed by Timo Harakka (SDP), who argued about the effects of the mooted tax with employer organisations in the run-up to the elections held in mid-April.

“This is a petition to everyone,” said Isomaa-Myllymäki. “The Social Democrats has of course spoken about the possibility of adopting the tax and advocated it strongly. But we wanted to draw attention to the problems before the entire tax policy group.”

“I can tell that the subject stirred up discussion,” she added, refraining from commenting on the specifics of the discussions.

Isomaa-Myllymäki added that if the parties agree to move forward with the proposal, they should do so only after conducting a thorough study to determine the effects the tax would have on companies.

“The tax would unfortunately ultimately – if it applied to earnings-related pension funds – affect pensions in the form of pressure to raise pension contributions or cut future pensions,” she said.

The Social Democratic Party has proposed that the withholding tax be imposed on dividends received by institutional investors – such as investment funds, pension insurance funds and trade unions – in Finland. Employers have warned that the proposal would limit the ability of domestic companies to raise funding and undermine the capital market by restricting the flow of foreign capital to Finland.

Their main counter-argument has been that the tax would treat companies unequally: Finnish companies would invariably be liable for the tax, whereas foreign ones could avoid it depending on tax treaties.

The Social Democrats has estimated that only five existing tax treaties would come in the way of collecting the tax and reminded that the bilateral treaties could be re-negotiated.

Most of the treaties, however, are with countries that are important for the Finnish financial sector, such as France, Ireland, the United Kingdom and the United States. Isomaa-Myllymäki also viewed that the idea of re-negotiating the treaties is unrealistic, first because tax treaties are reciprocal by nature and second because there are no guarantees that the other party is willing to amend the treaty.

“You can’t just remove one section from a treaty, but any change always means the entire treaty has to be re-negotiated,” she explained.

“And it’s not a given that the other party to the treaty is willing to make the change, as we witnessed during the negotiations with Portugal.”

Finland sought, to no avail, to re-negotiate its bilateral tax agreement with the country in order to be able to levy a tax on private-sector pensions paid to Finnish pensioners living in Portugal. The tax agreement was terminated at the beginning of 2019.

Aleksi Teivainen – HT
Source: Uusi Suomi