Finance Minister rejects tax competition
Urpilainen says Finland cannot reduce corporate taxes in Sweden’s wake
Minister of Finance Jutta Urpilainen (SDP) opposes any further reductions in corporate taxes.
"There are no possibilities for any new significant tax cuts in this situation", Urpilainen said to Helsingin Sanomat at a meeting of ministers of finance of the European Union held in Cyprus on Friday.
The possibility of lowering corporate taxes came up in Finland after Thursday’s announcement by Sweden that it was bringing down its corporate tax from 26.3 per cent to 22 per cent.
Finland reduced its corporate tax rate by 1.5 percentage points from 26 per cent to 24.5 per cent at the beginning of this year.
"I don’t see that Finland should take part in any aggressive tax competition. I do not believe that there would be any winners in such a competition, but there would be many losers, because tax revenues would disappear", Urpilainen says.
Kimmo Sasi (Nat. Coalition Party), the chairman of the Parliament’s Finance Committee, came out in favour of cutting the tax to 22 per cent, and MP Sampsa Kataa (Nat. Coalition Party), a member of the same committee, said that Finland's tax rate should be at the same level as that of Sweden.
Prime Minister Jyrki Katainen (Nat. Coalition Party) mentioned Sweden’s corporate tax cut during Parliamentary question time on Thursday when he answered an MP’s question about problems facing Finnish competitiveness. He says that corporate taxation is one matter that will have to be taken into consideration when the issue of corporate competitiveness is debated.
Katainen is taking a more moderate view on the matter than his fellow National Coalition Party members in Parliament. He told Helsingin Sanomat that Sweden’s corporate tax cut does not mean that Finland would need to follow suit.
He said that Finland needs to look carefully at ways to boost Finnish competitiveness.
"Sweden’s corporate tax cut is not a key detonator. It is simply a reminder that competitors, including Sweden and Germany, do things", Katainen says.
Both Katainen and Urpilainen point out that in addition to cutting the corporate tax, Finland has reduced energy taxation and offered a number of incentives for small and medium-sized companies.
Competitiveness comes from a whole, not from corporate taxes alone, Katainen observes.
"We have seen now that export companies pay taxes to different countries, and fairly little to Finland. It shows that the corporate taxation level alone does not explain competitiveness", Katainen says.
Helsingin Sanomat reported on Friday that only a small portion of the income of large Finnish export industries ends up being taxed in Finland. Finance Minister Urpilainen said that the information in the article was a cause for concern.
"Undoubtedly there are some quite well-founded reasons, such as loss reduction, which have contributed to reducing taxes that have been paid. But if and when there is conscious tax planning, then I find that disagreeable", Urpilainen says.
Katainen says that he has pondered for a long time if Finland could have a tax model that would better support growth, and which would bring in more tax revenue. It would mean a broader tax base, lower taxes, and fewer deductions.
However, in this year’s budget proposal the government increased the amount of various tax deductions by about half a billion euros.
"As there were no decisions to make great structural changes, there were two options – either a cut in the corporate tax, or precision deductions", Katainen said, adding that the decision was made to target resources to benefit relatively small, growing companies.
Prime Minister Katainen pondered "Finland’s dilemma".
"We are at the head of statistics for competitiveness, but the situation does not promote investments. Logic would dictate that we should have plenty of investments, but this has not happened in recent years. Something should be done."
Previously in HS International Edition:
Large companies good at avoiding taxes (14.9.2012)
Sweden is to cut corporate tax rate to 22 per cent (14.9.2012)
Loan interest paid to foreign creditor helps Finnish company avoid taxes on large profits (15.8.2012)