Finland's interests must be taken into account in the international tax reforms

Finland must be closely involved in the EU and OECD taxation projects. The tax sovereignty of EU countries must be defended. Finland, as a small, digitized exporting country that relies on intellectual property rights, is in a completely different position than large member countries with their bigger consumer markets.

Fundamental transition towards consumption based corporate income taxation should not be supported. This would mean allocating significantly more taxation right to the country of consumption. Such proposals are, for example:

  1. European Commission's directive proposal on the harmonized business taxation BEFIT model (Business in Europe: Framework for Income Taxation)  
  2. previously proposed EU digital tax (currently on hold)
  3. OECD's new Pillar 1 Amount A model, which allocates part of the excess profit of large and profitable international groups to the market country.

The European Commission published a draft directive on the BEFIT tax model on 12 September 2023. Simultaneously, the Commission also issued a directive proposal on EU's transfer pricing rules and on the Head Office Tax system (HOT) for SMEs.

The Organisation for Economic Co-operation and Development OECD is finalizing its significant corporate tax package consisting of two pillars (Pillar 1 and Pillar 2). The aim is to update international corporate taxation to address the tax challenges emerged due to the digitalization of the economy. The reform would also mean the introduction of a global minimum tax of 15 %. OECD has published the Pillar 2 GloBE (Global Anti-Base Erosion) model rules, commentary and information return rules.

As Amount A would be applicable only to highly profitable multinational groups with a yearly turnover exceeding 20 billion euros, it currently seems that most of the Finnish companies would be out of scope of the new Pillar 1 Amount A -model. Nevertheless, costs will be incurred, for example, from requirements to collect and report consumer data to group companies and business partners. Increased tax costs to large companies might indirectly increase costs of Finnish companies.

The transfer pricing model of Pillar 1 Amount B and the Pillar 2 GloBE-rules (minimum taxation) would apply to Finnish companies more broadly, affecting companies with a yearly turnover exceeding 750 million euros. EU Member States unanimously approved the Minimum Tax directive in December 2022. The directive is based on the OECD's Pillar 2 GloBE-model rules. Each EU country must implement the directive to their national tax legislation by 31 December 2023 at the latest. The schedule is extremely tight, not only for companies, but also for tax administrations. Therefore, during the first three years should be refrained from tax increases. Applying for preliminary rulings should be enabled.

Finland should hold on to its tax sovereignty

The European Commission has proposed that its long-term budget (MFF) would be partially funded with new own resources, including:

  • 15% of the tax revenues based on OECD Pillar 1 directive
  • part of the tax revenues on BEFIT
  • 25% of the extended Emissions Trading System income (ETS)
  • 75% of the Ccarbon Border Adjustment Mechanism income (CBAM)
  • Financial Transaction Tax (FTT)

The Pillar 1 tax directive replaced the EU's digital services tax proposal. The new corporate tax model BEFIT (Business in Europe: Framework for Income Taxation) replaced the old directive proposal on common consolidated corporate tax base model (CCCTB). CCCTB was abandoned in the summer of 2021. The basic idea of BEFIT is still the same as in CCCTB: the taxable profit would be calculated using harmonized tax rules, consolidated and allocated based on a formula to be taxed in the Member States. In the new BEFIT directive proposal, no allocation formula was published, but it was announced that one will be issued. If the distribution formula is similar to the one in the CCCTB proposal, it will be disadvantageous for Finland.

EU taxation must be fair to all EU Member States. The EC must always perform a reliable impact assessment to evaluate the new taxes’ effect on growth, competitiveness and trade relations of the EU. If less tax revenue is directed to the Finnish budget due to changes in EU taxation, the shrinking tax base in Finland must not be compensated by increasing corporate and property taxation. Also, the government program states that the EU's new own resources must not cause excessive additional costs to Finland.

Decisions on EU’s own resources and funding, as well as taxation must remain a matter for the Member States’ sovereignty and require unanimity. The EU Commission and Parliament have repeatedly proposed qualified majority voting (QMV) in tax matters instead of the current unanimity requirement. In QMV, small member states would not have the same possibility to influence in EU's and their own national taxation. Thus, there should be no shift to qualified majority voting (QMV) in the EU in tax matters. We interpret that the entry in the government program of Finland that increasing majority decision making is only possible in limited areas of foreign and security policy means that Finland is opposing qualified majority decision making in tax matters.

Always, when possible, a global tax model should be preferred and supported. Introducing globally different EU-wide corporate income taxation systems does not support EU's attractiveness as a business location, and results in additional administrative costs, hitting the SMEs hardest. Globally different tax systems are likely to cause expensive tax disputes, double taxation, heavy administrative costs, possible protective counter tax legislation and increased tax burden for EU companies. This does not enhance proper functioning of the Digital Single Market (DSM) and is likely to harm the competitiveness and growth throughout the EU.

The EU should rather focus on unifying and simplifying tax procedures. 27 different tax systems and a jungle of reporting models are not reasonable or sustainable for companies or governments.

Sustainability and the fight against climate change must also be taken into account in taxation. For example, hydrogen should be included as a low-emission form of energy and within the scope of lower energy taxation when updating the energy tax directive. Investments in innovations that put less burden on the environment and increase productivity and efficiency should not be made less attractive by stricter taxation of digitalizing business.

Active influencing in the EU

Finland should have a consistent, clear vision and guidelines for the desired direction of EU tax policy, so that Finland can influence the EU in a timely manner. Plan to draft EU tax policy guidelines is included in the new government program.

Finland must also participate actively and on time in EU projects on simplifying and digitalizing tax reporting (e.g. VAT in the Digital Age), as well as enhance the real-time economy (RTE) in the EU. RTE would also help in the fight against the shadow economy. The work program of the new EU Commission should include a goal to lighten the administrative burden of tax reporting in general. We support the entry in the government program, that overlapping tax regulation and excessive administrative burden should be minimized. The new minimum tax directive and the related tax vase calculation rules might in the long run enable gradual harmonizing of corporate income tax reporting, if done with the interests of companies in mind.

It is necessary to develop Finland's tax treaty network so that companies are not hit by double taxation and heavy tax disputes. When making investment and location decisions, companies operating in the international market evaluate whether the country in question has a comprehensive, up-to-date double tax treaty network. Double taxation (e.g. in software revenues) should also be prevented by legislative changes and by developing dispute resolution procedures.

SMEs in particular need more knowledge about international taxation. The tax administration's and Team Finland's guidance should be further developed.

International remote work should be facilitated:

  • Remote work for a Finnish company must not constitute double taxation for the employee
  • Remote work done in Finland may not constitute a permanent establishment in Finland for a company located in another country
  • Finland should also participate in the EU's and OECD's work regarding reform of the income taxation of international remote work (and platform work)

Read more:

Future-Proofing Tax – Green, Digital, Fair and Global Co-operation What are sustainable tax systems from the perspective of business?

An extension in the drafting of the Minimum Tax Directive is needed 

Comments regarding EC’s proposal on new own resources to fund EU’s recovery package and long-term budget

Comments on the OECD’s Public Consultation Document Pillar I - Amount A 

EC acknowledges in it’s Tax Package that simpler taxation would support EU’s recovery

Statement on the VAT in the Digital Age

Statement on the VAT in the Digital Age directive proposal

One-pager RTE and taxation

Position Paper on the Head Office Tax System proposal (HOT)