The Finnwatch report regarding the role of holding companies in the investment activities of Finnish companies, published on Wednesday, has ignited a lively discussion in mainstream media about the responsibility of tax planning of large Finnish companies.

After the publication of our report, The Federation of Finnish Enterprises representing interests of SMEs has criticized large companies for taking advantage of tax havens and calls for tax moral. From the point of view of the Federation of Finnish Enterprises, tax planning is an unfair advantage gained by large companies through often artificial arrangements. On the contrary, the Confederation of Finnish Industries and Finland Chamber of Commerce have strongly objected to the Finnwatch research report and strived to label the research as based on faulty premises.

The Confederation of Finnish Industries has published a response to the Finnwatch research titled ”Tax discussion astray”, in which it has made several misleading and partly incorrect statements. Finnwatch states that the Confederation of Finnish Industries has not brought up any erroneous fact in the Finnwatch research, and is rather focused on bringing out differences of points of view in an exaggerated and partly misleading way.

We would like to respond to the statements made in the response of the Confederation of Finnish Industries (EK) point by point:

EK: “The report labels Finnish public companies by name as tax evaders.”

The Finnwatch report is the first comprehensive description of using tax havens in ownership structures of Finnish companies. The report does not label any of the Finnish companies as tax evaders, rather brings new statistics into using holding companies, which until now has been left in the blind spot of public discussion. Tax evasion as a term is only mentioned in the report once in connection with international examples of return flow. The concept of tax evasion refers to illegal activity, whereas tax planning is a legal activity and tax planning relating to tax havens is a corporate responsibility issue.

EK: ”The Finnwatch report creates the impression that using a holding company always means some sort of tax evasion or minimizing taxes.”

As mentioned before, the Finnwatch report discusses tax planning, not tax evasion. The Finnwatch report clearly states that holding companies or shelf companies refer to companies established by multinational corporations to govern their other companies and their funding. According to the OECD definition, holding companies are subsidiaries of multinational companies, whose only purpose is often to own other companies in the group. Some of holding companies may have real property, such as an office, equipment and employees. It is common to use holding companies for tax planning, and this is why their use should be researched further.


EK: ”One of the strangest interpretations of the report is to call the Netherlands a tax haven. The Netherlands is definitely not a country which should be considered a tax haven according to the OECD definition.”

Defining the Netherlands as a tax haven is not based on criteria invented by Finnwatch. One of the OECD’s central definitions of tax haven is lack of actual business activity. The Netherlands has over 10 000 shelf companies, more than any other EU country. For example the international research organization Tax Justice Network defines the Netherlands a tax haven. The tax haven status of the Netherlands is widely justified in the Finnwatch report. There is an active discussion going on in the Netherlands about the country’s tax haven features. Among others, the president of the United States has called the Netherlands a tax haven in his statement.


EK: ”This [innovation box] is a political fiscal decision of the Netherlands, which has also been approved by the EU.”

It will be interesting to see how Netherlands’ innovation box will be treated in the future. According to the European Commission, at least the patent box legislation of the United Kingdom is conflicting with the guidelines of the EU Code of Conduct Group on Business Taxation.


EK: “It seems to be sufficient to be called a tax haven for the purposes of the report for a country to have created a competitive corporate tax system, which attracts companies.”

The main purpose of tax havens is precisely to create ”a competitive corporate tax system”, which attracts companies artificially to its territory to avoid taxes of companies’ home countries. The Finnwatch report is opening discussion whether using such territories artificially in business is a responsible activity.


EK: Controlled foreign corporation law is an effective weapon against tax havens.

Controlled foreign corporation legislation is not an efficient weapon against tax havens and it may only be used to intervene in the most artificial tax planning. Controlled foreign corporation legislation was significantly weakened by e.g. the European Court of Justice ruling in Cadbury Schweppes case.


EK states that “when the [controlled foreign corporation law] is applicable, tax haven companies may be taxed as income of their Finnish owner, despite the fact that the company located in a country of low taxation is a separate entity there.” However, the standard of proof is very high for the tax authority in such cases. If the tax haven problem would have been resolved by controlled foreign corporation legislation, which has been in force for years, for example OECD would not have a reason to state that tax avoidance by corporations is getting more aggressive forms.


EK: ”The report also conveys the completely wrong impression that a Finnish company would be able to avoid paying taxes through tax haven ownership.”

Many Finnish companies avoid paying taxes in their actual countries of business with the help of tax havens. Many examples of tax avoidance have been brought up (e.g. Stora Enso, Attendo, Mehiläinen). Finnish Tax Administration has estimated that transfer pricing trickery alone costs Finland 320 million euros in tax income.


EK: “It is impossible that an international concern would be able for example to hide the existence of a tax haven company from the tax authorities.”

EK is deliberately focusing on discussing the Finnwatch report from the point of view of tax evasion, which is incorrect. Companies do not need to hide their tax haven companies, as their usage for aggressive tax planning is allowed by the law and at the moment made too easy. The Finnwatch report wants to start a discussion about the responsibility of tax planning and demands decision makers’ actions to eliminate loopholes. These actions (for example comprehensive country-specific reporting) are generally opposed by the EK. Small and medium-sized companies and large companies who responsibly pay taxes are the ones to suffer from this.


EK: ”Using wrong and inadequate facts, the reputation of Finnish honestly acting companies is damaged."

Finnish companies can take care of their reputation by publishing their corporate structure, reporting their tax payments country-specifically and by avoiding artificial tax haven arrangements. As the interest group of large Finnish companies, EK should position itself to defend honest and open business activity which in addition to following the literal meaning of fiscal laws, also follows the spirit of the law.  

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