Finland has lost about EUR 90 million in tax revenue over the past five years due to tax arrangements made by the country’s largest electricity distribution companies, according to a new report published by Finnwatch’s corporate supervisor on Tuesday.
Although electricity transmission companies have been in the media spotlight in recent years due to significant increases in transmission fees, Finnwatch says that less attention has been paid to companies’ aggressive tax planning.
Finnwatch stated that the two companies together have a third of the market share in the country’s transmission market.
Group tax expert, Saara Hietanen, said that the electricity companies Caruna and Elenia took advantage of Finnish corporate tax rules.
According to Finnwatch, the financial statements of the last three years have shown that companies were both heavily indebted and that their operations and assets were financed almost entirely by debt and not by equity-based capital investments. The NGO reported that this practice, called a capital increase, was a common form of aggressive tax planning.
It added that the tax planning of both companies was based on the use of shareholder loans and Finland’s weak tax legislation.
"Caruna continues in its tax planning the so-called. The balance sheet exemption, which allows it to deduct all interest expenses paid to the company’s shareholders in its taxable income," Hietanen said.
Loose laws and loopholes
The watchdog noted that Finnish laws on such practices are loose and have gaps that can help companies avoid paying taxes.
Two years ago, Finnwatch published a report accusing the government of failing to combat tax evasion. At about the same time, it was reported that Caruna had paid taxes on only 0.28 percent of its profits.
Caruna is partly owned by the Finnish pension fund companies Elo and Deva, as well as the Canadian investment services companies Omers Infrastructure and the Australian First Sentier Investors.
At the same time, Elenia is owned by the Finnish State Pension Fund together with the German international investment giant Allianz Capital Partners and the Australian investor Macquarie Infrastructure and Real Assets.
Debt heavy
According to Finnwatch, the Finnish parent company of the Caruna Group had loans of approximately EUR 775 million and that the interest expenses on this debt were approximately EUR 75 million.
Elenia, reported by the watchdog, had distributed shareholder loans to her Finnish parent company via Luxembourg and the Netherlands. Finnwatch said it expected the company to use the balance sheet release and stated that it wanted greater deductibility of interest expenses.
"In practice, this means that with such an arrangement, the company expects to avoid taxes of around EUR 100 million over the next 10 years," Hietanen said.
Finnwatch stated that changes were made to Finland’s interest rate deductions a couple of years ago, but the balance sheet exemption law was still in the book.
A survey conducted by Finnwatch’s parliamentary parties last summer showed that, with the exception of the center-right national coalition, most parties were in favor of tightening interest rate cut restrictions.
The Center and the Swedish People’s Party were the only parties that did not take a stand, according to Hietanen.
Source: The Nordic Page