HS: Overlooked Tax Administration decision created a loophole for wealthy

THE FINNISH Tax Administration in April made a curious decision that drew little media attention despite finding its way into the dinner-party conservations of well-off families, reports Helsingin Sanomat.

The Tax Administration ruled that parents who pay off the student loans of their children face no tax consequences, the newspaper summarised on Tuesday.

Talouselämä had written about the decision a day earlier.

Helsingin Sanomat reported that although parents have been allowed to cover the living expenses and education costs of their children tax free, there has been ambiguity over the classification of student loan repayments.

The Tax Administration in April ruled that as the student loan has a maximum limit corresponding with students’ approximate living expenses until graduation and is conditional on students making progress in their studies, it should be invariably interpreted as a student loan rather than an investment loan.

A student enrolled in an integrated, 300-credit bachelor’s and master’s programme can take out a student loan of up to roughly 31,000 euros.

The Tax Administration does not inquire how the loan has or will be used. Maisa Katisko, a lawyer at the Tax Administration, confirmed to Helsingin Sanomat that under what she described as the “fairly liberal” new guidelines students are required to provide no account of how they intend to use the loan.

The guidelines enable tax avoidance in circumstances where student loans are drawn down for living expenses: students can invest the loan in shares or on a savings account while their parents pay off the loan later, effectively transferring possibly tens of thousands of euros in wealth to their child without any tax consequences.

Helsingin Sanomat on Tuesday reminded that, in the current tax environment, the repayments can be made also by another well-off family member, such as a grandparent.

Aleksi Teivainen – HT