Minister Toivakka in tax avoidance row
Finland’s Minister for Foreign Trade and development, Lenita Toivakka, has admitted being involved in a scheme to reduce tax liabilities on a multi-million euro shopping centre development in Mikkeli. She insisted that the arrangement was legal as well as commonplace for international property investors.
Finland’s Minister for Foreign Trade and development, Lenita Toivakka, has admitted that a family business in which she and her husband are shareholders has engaged in tax avoidance practices. But the minister denied being directly involved in making the arrangements, and pointed out that the scheme was legal.
An Yle investigation found that the Toivakka family’s share of the multi-million euro Akseli shopping centre development in Mikkeli, which opened in 2009, is in fact owned through a Belgium-registered holding company.
The arrangement is not against the law, but Belgian-owned holding companies are often used by property developers to reduce tax liabilities.
Toivakka is the second minister in the Sipilä government to be embroiled in a tax planning scandal, after the revelation last month of Communications and Transport Minister Anne Berner’s involvement with companies based in Luxemburg during her time as minister.
Before becoming an MP for the National Coalition Party in 2007, Toivakka worked as an entrepreneur in the grocery trade in the eastern town of Mikkeli. In 2005 Toivakka and her husband Jukka moved from the retail industry into investments and property developers.
One of the Toivakka family’s major projects was the construction of a large shopping centre in the centre of Mikkeli. The centre, which was worth dozens of millions of euros, opened its doors in November 2009 and contains around 50 stores. The development is one-third owned by Toivakka family members, with the remaining shares held by the media company Länsi-Savo Oy and the Laakkosen family investment company, who also own a large stake in the Karjalainen newspaper.
Of the 33 percent share in the Mikkeli shopping centre owned by the Toivakka family, around five percent is owned by Lenita Toivakka, her husband and their children.
Belgian holding company
The Toivakkas’ share of the shopping centre is owned through a company called K5 Kiinteistökehitys. According to minutes from the company’s 2009 annual general meeting, K5 Kiinteistökehitys is in turn fully owned by a Belgian holding company called Vacca-Invest SPRL.
Asked by Yle about the set-up, Minister Toivakka said the holding company was established with the intent of selling the shopping centre to a foreign property investor.
”The arrangement related to a major construction project by the third generation of a family business, which was intended to be sold during the development stages to an overseas property investor. The set-up was fully compliant with EU legislation,” Toivakka and her husband said in an email.
Normal business practice
Toivakka admitted that the arrangement was partly entered into for tax planning purposes, and insisted this is a normal business practice.
”Above all it’s important that companies follow the law. In this case tax planning was undertaken in a way that was entirely commonplace in the corporate world and is entirely permitted. There was nothing illegal about this arrangement,” Toivakka said.
Asked in person whose idea it was to set up the Belgian holding company, Minister Toivakka said she had not played any part in the operations of the company. “We are talking about 2007 and you would need to ask the people who brought this about, ie., my husband and his brother,” Toivakka told Yle.
Toivakka has been an MP for the National Coalition Party since March 2007.
The Belgian company now reports a minimal turnover, with a few tens of thousands of euros in its coffers, after a planned sale of the shopping centre failed to materialise. Rental income from the centre has gone into a Finnish company.
The use of holding companies by property investors is a widespread tax avoidance practice, where a subsidiary in a country of high taxation owes money to a subsidiary in a country of low taxation, thereby often substantially reducing its tax liabilities.
The laws around tax avoidance were tightened in 2012, but some believe there are still loopholes.
In an interview with Yle at the time, Professor of taxation rights Heikki Niskakangas said that the largest single area which remained untouched by the taxation reforms were overseas property investors.
In May Yle discovered that 20 billion euros’ worth of Finnish company money invested in Belgium-based tax avoidance schemes. The European Commission is reported to be looking into the tax breaks offered to Belgian companies.
Stubb: Not problematic
Meanwhile the leader of Toivakka’s party, the NCP, Alexander Stubb, said on Wednesday that he does not consider his minister’s shares in a Belgian holding company problematic. Stubb, who is also finance minister, insisted that Toivakka’s background in the commercial sector has been of great value to Finland.
”As far as I understand it we are talking about a holding company that was established in 2007 for the purpose of a property deal which did not ever materialise. The company still exists, but has no operations,” Stubb said.
He added that the Toivakka family business is one of Finland’s most successful stores which employs many people and pays all its tax in Finland.