According to Saara Hietanen, a tax expert from Finnwatch, Finland's position in the index highlights a failure to adequately prevent profit-shifting by multinational corporations. "Finland's tax laws do not do enough to stop profit transfers. For example, Denmark performs much better in this area," Hietanen noted.
Loopholes in Profit-Shifting Regulations
One of the key factors raising Finland's tax haven ranking is the lack of robust legislation to prevent profit-shifting within corporate groups. In Finland, there are weak restrictions on the deductibility of interest expenses, and there are no limits on royalty and service payments between companies in the same group. These gaps make it easy for large corporations to transfer profits abroad, thereby avoiding taxes in Finland.
"Many other EU countries have recently recognized the need to limit not only interest deductions but also other intra-group expenses. Finland should follow suit," Hietanen urged.
Finland’s limitations on interest deductions are weaker than in many other EU countries due to the inclusion of numerous loopholes allowed under the EU's Anti-Tax Avoidance Directive. Finland, along with countries like Cyprus, Hungary, Luxembourg, and Malta, has allowed exemptions for old loans and the financial sector, while also offering highly leveraged corporate groups a way to bypass restrictions through balance sheet exemptions.
"In this respect, Finland aligns with some of the EU's own tax havens," Hietanen remarked.
Issues with Anti-Avoidance Laws
Finland’s relatively poor performance in the index is also attributed to the weakness of its Controlled Foreign Company (CFC) laws, which aim to prevent tax avoidance through holding companies. A loophole in these laws means that the anti-avoidance rules rarely apply to profit transfers to other EU countries. This is particularly problematic as a significant portion of profit-shifting from Finland is directed toward other EU member states.
"These loopholes have been known for a long time, yet little action has been taken to fix the tax laws, aside from some tightening of balance sheet exemptions by the previous government," Hietanen added.
Strengths and Areas for Improvement
Despite its shortcomings, Finland's tax system does have strengths. The country has not established special economic zones, nor has it introduced tax holidays or significant deductions for intangible assets, such as intellectual property. Additionally, Finland does not erode its tax base with overly generous equity deductions.
However, Finnwatch continues to push for reforms, urging that Finland address these loopholes both domestically and by advocating for changes to the EU’s Anti-Tax Avoidance Directive. Both interest deduction limitations and CFC rules are governed by the directive, which sets the minimum standards for national tax laws across the EU.
"The minimum regulations set by the directive are not enough to effectively prevent tax avoidance and aggressive tax planning. The directive should be revised as part of the ongoing review process," Hietanen emphasized.
Familiar Tax Havens Top the Index
At the top of the Corporate Tax Haven Index are some familiar names: the British Virgin Islands, the Cayman Islands, and Bermuda, all British Overseas Territories. The Tax Justice Network highlighted the UK’s contradictory role, noting that while the country protects its own tax base, it allows its overseas territories to cause significant tax revenue losses for other countries.
The top ten also includes three EU countries—Netherlands, Ireland, and Luxembourg—as well as Switzerland, Singapore, Hong Kong, and Jersey.
HT
