Yle programme: Finnish corporations cold-shoulder EU anti-tax planning efforts

Finnish companies continue to take advantage of legal tax planning to shelter their profits from taxation. According to Yle’s Ajankohtainen kakkonen current affairs programme, state-owned firms are among those that have been dragging their feet on reporting income from their foreign subsidiaries.

The European Union is making an effort to shutter tax havens operating in the common area. Last June the European Commission published an action plan for cracking down on tax evasion enablers among EU member states. The Commission has estimated that it misses out on as much as one trillion euros in tax revenues every year.

At the same time it launched a series of public consultations to find out whether companies should be obligated to disclose their tax contributions in country-specific reports. Majority state-owned energy giant Fortum responded to a survey question on transparency thus:

“We believe that that transparency in tax information will likely lead to unnecessary media interest and there would be a great risk of misunderstanding,” the company said.

Ajankohtainen kakkonen discussed Fortum’s position with Reijo Kostiainen, a retired former chief financial officer of the majority state-owned industrial and minerals processing company Metso.

“So others besides you and I have misunderstood. Fortum is facing a billion-euro court case. I guess the entire case can’t be a misunderstanding,” Kostiainen quipped, referring to Fortum’s ongoing court battle over tax planning activities by its subsidiaries in Belgium, Luxembourg and the Netherlands.

Lax government reporting guidelines

Last year the government’s state ownership steering unit issued guidelines to majority state-owned enterprises calling on them to provide country-specific tax reports. The intention was to ensure that companies would report their taxable income in the territories where business activities actually occurred.

The retired finance chief said that the directive was flawed right out of the starting gates.

“In addition to reporting income taxes it also called for other kinds of taxes, such as excise duties, property and value added taxes, and employment-related taxes. Income taxes are only a small portion of all this but it’s with income taxes where multinational companies engage in aggressive tax planning,” Kostiainen pointed out.

Eero Heliövaara, director general of the government’s state ownership steering unit, acknowledged that some of the criticism was justified, but that it would not change the unit’s guidelines for 2015.

As far as Kostiainen is concerned companies such as Neste and Fortum are exploiting the laxness of the guidelines.

“Forum divided its country reporting into Finland, Sweden and ‘other countries’. Neste provides reports for only Finland and ‘other countries’. The incomes of Fortum’s numerous financing and holding companies and minimal taxation in Belgium, Ireland, Luxembourg and the Netherlands are not reported,” he pointed out.

Director General Heliövaara told AK that the unit would review the reporting guidelines, but there would be no promises forthcoming to close down the companies’ financing subsidiaries in Belgium, the Netherlands or Luxembourg.

“We can’t go there when it comes to publicly listed companies. They have tens of thousands of shareholders. We must take a balanced view of the situation and the company’s board has significant powers in this regard,” Heliövaara noted.

The main private sector business lobby the EK did not participate in the European Commission’s public consultations but Parliament’s Finance Committee heard the organisation when it present a paper on the Commission’s efforts to tackle aggressive tax planning.

EK: Country-specific reporting should be voluntary

The EK said at the time that “with respect to country-specific reporting, we believe that it would be most practical to report on a voluntary basis.”

“Voluntary reporting has already yielded positive results. It is widely in use by companies. We shouldn’t create regulations if there is no special need,” said EK tax chief Virpi Pasanen.

Ex- finance chief Kostiainen admitted that from the perspective of a company that engages in tax planning, voluntary reporting works well.

“For example Fortum’s Irish financing subsidiary had profits of 37 million euros in 2014 and 46 million in 2013. No taxes were paid in either year,” Kostiainen said.

No extra administrative burden needed

The EK’s Pasanen also told the parliamentary committee that “we need to ensure that normal tax competition within the EU is preserved. This must be possible from the perspective of tax rates as well as the tax base.”

In its responses to the European Commission survey Fortum stressed that it paid out millions in excise, property, employment-related and value added taxes. However the Commission never asked about this – its focus was exclusively on taxes on profits, which companies used aggressive tax planning to avoid paying.

Kostiainen however said he has provided a free solution to the state ownership steering unit to help simplify reporting of country-specific profits.

“At its simplest, reporting of country-specific tax data is simply an aggregation of subsidiary information for each country. The frequently-posed claim that there would be an additional administrative burden is not an obstacle to providing country-specific tax reporting,” he concluded.

The issue of Finnish corporate attitudes to EU efforts to rein in aggressive tax planning was examined on Yle’s Ajankohtainen kakkonen current affairs programme Tuesday evening.