Finland's interests must be taken into account in the international tax reforms
Allocating significantly more taxation right to country of consumption should not be supported. Such proposals are, for example:
- harmonized business taxation BEFIT model, which is currently being drafted by the EU Commission.
- previously proposed EU digital tax and CCCTB model
- 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 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 considering the digitalization of the economy. The reform would also mean the introduction of a global minimum tax of 15 %.
As Amount A includes for the time being only a limited number of large and highly profitable enterprises, it currently seems that the majority of Finnish companies would be excluded from 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. The transfer pricing model of Amount B of Pillar 1 and the Pillar 2 minimum taxation will apply to Finnish companies more broadly.
Finland should hold on to its tax souverignity
The European Commission has proposed that the recovery package (RRF) and long-term budget (MFF) would be partially funded with new own resources, including various taxes, including:
- Single Market Tax
- 15% of the tax revenues based on OECD pillar 1 directive
- 25% of the extended Emissions Trading System income (ETS, Emission Trading System)
- 75% of carbon border adjustment mechanism income (CBAM, Carbon Border Adjustment Mechanism)
- Taxation of disposable plastics
- Financial Transaction Tax (FTT)
In addition, it is likely that the new corporate tax model BEFIT (Business in Europe: Framework for Income Taxation) which is being prepared, will replace the common consolidated corporate tax base model (CCCTB, common consolidated corporate tax base). CCCTB was abandoned in the summer of 2021. The Pillar 1 tax directive replaced the EU's digital tax proposal.
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 ownership taxation. Decisions on EU’s own resources and funding, as well as taxation must remain primarily a matter for the Member States’ sovereignty and require unanimity. There should be no shift to qualified majority voting (QMV) in the EU 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 companies to locate in the EU, and results in additional administrative costs, hitting the SMEs hardest. Thus, does not promote level playing field. 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.
Sustainability and the fight against climate change must also be taken into account in taxation. 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 digitized business.
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 development of the tax administration and Team Finland's guidelines is necessary.