Minister of Agriculture and Forestry Jari Leppä (Center) revealed to the broadcaster that the change is expected to be approved early next year. “During the session, we decided to limit the ability of forest funds to take advantage of the reduction,” he confirmed, adding that the decision closes a loophole in the income tax system that has been exploited by at least some forest funds.
The need for change stems from concerns that domestic forests will end up in the hands of faceless and for-profit foreign investors. Mikko Tiirola, Chairman of the Federation of Agricultural Producers and Forest Owners (MTK).
“Market activity has been completely wild in recent years, and there are also foreign players among them,” he said.
Funds and institutional investors have leveraged their resources and various tax benefits to collect up to half of the forest areas that have entered the market in recent years, according to MTK. Forest funds and investors have acquired up to 80 percent of the sold areas in Kainuu and North Karelia.
“The funds have found a loophole in the legislation. Some funds have acquired forest areas for the ownership of the jointly owned forests they have established, ”Tiirola said.
Lawmakers, he estimated, proposed the deduction primarily to individuals, mansions, and co-owned forests: “It really wasn’t meant for businesses or funds.”
The instrument allows forest owners to deduct 60 percent of forest acquisition costs from forestry revenues.
Tiirola reminded that the forest fund’s holdings can be transferred to foreign ownership in one transaction, as evidenced by the recent sale of two funds: Taaleri has sold 14,000 hectares of forest to France and United Bankers more than 18,000 hectares to Germany. He explained that as funds seek to maximize the rate of return on investment, the growth of their holdings may not contribute to forest biodiversity, for example.
Problems with the facelessness and short-term interests of the owners, in turn, have already been identified in the electricity grid sector, he added.
Leppä considered that the change in legislation will curb the phenomenon at least to some extent. “This is the first step in this direction. We will weigh additional measures if necessary, ”he commented to YLE.
The Finnish forest industry warned against exaggerating concerns. Manager Karoliina Niemi recalled that funds are typically a well-functioning form of ownership, as the pursuit of their efficiency ensures good forest management. He also estimates that forest funds have made only limited use of the tax deduction.
“The most important thing is that forests are managed actively, responsibly and patiently and that the timber trade works,” he outlined and drew attention to the importance of securing raw materials for the forest industry.
Buyers’ motives may also vary according to Tiirola.
“Are they related to, for example, emissions trading substitution or security policy? Regardless of the event, the intergenerational commitment to community perspectives is incompatible with hunting clubs, ”he noted.
He also assessed that the change alone would not resolve the issues, noting that the government should begin planning a broader reform of forest taxes to harmonize the tax treatment of funds and private owners.
“We would be a long way off if the tax rate were the same for everyone,” he said.
Aleksi Teivainen – HT
Source: The Nordic Page