"Taxation should take better account of development that is socially, economically and ecologically sustainable"

2.1 Taxation in a changing world

Current situation

Two major pressures are currently influencing the Finnish and global economy: climate change and technological progress, including robotisation, digitalisation, the platform economy and artificial intelligence. Taxation should accordingly take better account of development that is socially, economically and ecologically sustainable.

The globalised economy and technological progress are threatening the traditional main function of taxation: financing the services and benefits of societies. The main problem with the current tax system is that regulation remains largely national, even as capital moves freely across borders and enterprises operate internationally.  

Finland must promote national and international solutions that secure and strengthen its tax base in a globally sustainable manner. The tax base of mobile capital is leaky. The longer-term theoretical objective should be taxation of corporate groups as a single entity. We must first tackle aggressive tax planning by strengthening the tax base and by preventing tax evasion connected with international investment activity. Both national and international measures must be taken to combat the grey economy. 

Finland must participate in ending harmful competition over tax bases with a commitment to common and fair rules within the framework of the OECD, the UN and the European Union. This will benefit Finland, which has refrained from such competition and therefore consistently supports cooperation. 

Sustainable financing of public services requires a strengthening of the tax base both nationally and internationally, with a view to reducing the burden on Finnish employees and businesses, and boosting conditions for growth. The public may then also find taxation to be equitable, and in the business community genuine competition will be furthered. 

Another function of taxation is income redistribution for the benefit of people on low and medium incomes, which is possible by taking into account the ability to pay in the bases of taxation. Taxation must also allow for the growing wealth gap.

Equitable taxation of digital services also requires an enlargement of the Finnish tax base, and the work of the Finnish Tax Administration on taxing the platform economy should be supported. 

Taxation must reinforce sustainable development and work to mitigate climate change both nationally and internationally in ways that are socially just and secure the tax base. Taxation must encourage more sustainable choices in manufacturing and consumption. 

Taxation must support the assigned objectives of economic and employment policy, as well as international competitiveness and the vitality of Finland as a whole. The focus of tax subsidies must move systematically and predictably towards economic reform and measures that boost research and innovation. 

We should also bear in mind that taxation is not always the most effective solution to social challenges. We also need systematic regulation and other guidance instruments

Objective 1

International taxation

The Government is seeking to secure the financing base for an affluent society in a rapidly evolving global digital economy.


Finland will actively and proactively promote international cooperation within the European Union, the OECD and the UN with due consideration for its national interests.

Finland will support solutions for combating and hindering the operation of tax havens, both within the European Union and throughout the world, to ensure that corporate profits and other income are taxed once in a transparent manner. The aim is broader and more robust tax bases that combat both the aggressive tax planning and tax evasion schemes of international businesses and harmful tax competition between states. The Government is also willing to renegotiate bilateral tax treaties if this is necessary for preventing tax avoidance.

Tax incentives that distort competition and other harmful tax competition must be identified and addressed effectively. Finland must play an active role in international cooperation for confirming the taxation of platform and digital economy businesses. Companies in which the state has a controlling interest will show an example of corporate responsibility by reporting their tax footprint in each country in accordance with ownership steering guidelines. Aggressive tax planning will not be tolerated.

A national collaborative body will be set up in Finland (e.g. a broad-based parliamentary advisory board) to maintain awareness of the prevailing situation on international taxation issues and to monitor developments in international taxation and assess the impact of different proposals on Finland.

In reforms concerning the financing of EU activities, Finland must ensure that its national interests are taken sufficiently into account. Decisions on financing the EU will continue to be the domain of Member States.

It will be appropriate to collect any new European Union own resources from sources that are better suited to broad-based international taxation than to the national taxation of any individual country. When reforming European Union financing we must assess how a European Union funding model can be linked to other ongoing reforms, such as combating climate change.

Objective 2

Strengthening the tax base

Strengthening the tax base is particularly important in a global economy where cash flows across international borders. A robust tax base also enables low tax rates and equitable taxation, promoting free enterprise, employment, growth, wellbeing and prosperity.


Withholding tax on dividends

The Government will study the prospects for introducing a 5 per cent withholding tax on dividends payable to foreign funds (and other corporations that are exempt from dividend tax) by the year 2022 in order to strengthen the tax base.

Besides conducting an international comparison, the study will also assess the impact of the withholding tax on various operators in Finland, and especially on non-profit organisations. The overall level of science, art, culture and sports funding will not fall as a result of any dividend tax. A review will also be conducted of tax treaties with a view to ensuring that their renegotiation does not limit the scope of the withholding tax.

Other measures to strengthen the tax base

The Government will continue the policy of previous administrations in phasing out the tax deductibility of interest payments on home loans. The remaining tax deduction will be completely eliminated during the Government’s term of office.

An investigation will study the prospects for reforming taxation of housing investment by limiting the right to deduct housing company loan premium repayments from rental income. The debt ratio has risen to over 80 per cent in many new housing companies due to this tax benefit.

The prospects for collecting a reasonable tax on profits derived from the real estate investments of foreign funds and other tax-exempt corporations will be investigated by 2022.

The domestic help credit will be reduced to 40 per cent of the payment for labour or service and 15 per cent of wages, with the maximum annual credit allowance reduced to EUR 2250. This will increase annual tax revenues by an estimated EUR 95 million.

A study will examine the requirements for introducing a parallel subsidy system that would also enable low-income households to benefit from a scheme corresponding to the domestic help credit

Combating the grey economy and aggressive tax planning, and digitalising financial administration

Society loses substantial annual tax revenues due to the grey economy and tax evasion. This not only undermines the status of lawful and ethically sound business operations and their staff by subjecting them to unfair competition, but also causes a shortfall in tax revenues that increases the burden of taxes and charges collected from others in order to finance public spending.

To reduce this shortfall, the Government will broaden and step up its countermeasures to the grey economy with a comprehensive programme backed by additional funding of EUR 20 million allocated over the electoral term. A previous separate appropriation for police operations to combat the grey economy will be placed on a permanent footing, with continued additional funding of EUR 1.3 million for the enforcement authorities and the Office of the Bankruptcy Ombudsman to combat financial crime. Substantial measures will be taken at the same time to promote digitalisation and the real-time economy of administration and society at large. The administrative obligations of businesses and the general public will also be eased in the long term. Finland is also actively involved in international cooperation to combat the grey economy.

Further steps will be taken towards full automation of enterprise financial administration by bringing structured electronic receipts and invoices into use. The tax authority will be given the necessary statutory powers and technological instruments to support optimally automated information gathering related to the taxation of operators in the digital platform economy. The prospects for gathering more information from VAT returns will be studied. Some EUR 30 million will be set aside over the electoral term for R&D projects required by the Tax Administration concerning the digitalisation of administration and promotion of greater transparency.

The tax number system that has worked well and prevented the grey economy in the construction industry will be introduced in shipbuilding. The need to introduce the tax number system in other high-risk sectors such as the tourism and restaurant sectors will be assessed. The PRH-Tax Administration Business Information System (YTJ) could be expanded to include more comprehensive details for managing key business obligations. A more detailed list of government measures to combat the grey economy is attached as Annex 4 to the Government Programme.

Finland will continue national efforts to combat international tax evasion and aggressive tax planning with a special action programme to broaden the Finnish tax base and improve transparency. The programme measures are set out in Annex 5. The Government will monitor the effectiveness of national and international measures to prevent tax evasion.

Objective 3

Tax reform for sustainable development


A sustainable taxation roadmap will be drawn up to serve the Government’s climate goal. The first stage of this roadmap will be completed in time for the 2020 government discussion on spending limits. The preparations will seek solutions that promote the Government’s climate objectives in the most economically effective way, accelerating the shift away from fossil fuels while meeting the requirements of social justice. The Government will also promote the realisation of climate targets in tax reforms at EU level.

The package will include a reform of energy taxation, a reform of transport taxation, promotion of the circular economy, and a study of emissions-based consumption taxation.

Reform of energy taxation

Emissions guidance in energy production will be increased by abolishing the industrial energy tax rebate system and reducing category II electricity tax towards the minimum rate allowed by the European Union. The overhaul will be carried out with cost neutrality over a transition period. Heat pumps and data centres generating heat for district heating networks will be transferred to category II electricity tax.

Reduced tax subsidies for combined heat and power production and higher heating fuel taxation will increase tax revenues by a total of EUR 100 million over the electoral term. Demand flexibility incentives will be promoted, for example through dynamic electricity taxation. Double taxation on electricity storage for pumped storage facilities and smaller batteries will be removed.

Reform of transport taxation

The emission reductions required for transport are substantial, as are the associated rapid changes in transport motive power, the ongoing technological breakthrough related to automation, and the spread of mobility as a service. Work will be launched in relation to these changes, seeking to secure the fiscal base of transport taxation over a period extending beyond the term of the present Government, and having regard to social justice and regional equality as emission targets become more severe.

Taxation of fossil fuels will be increased by EUR 250 million over the electoral term in line with the forecast rise in consumer prices. Changes in income taxation and benefits will allow for the impact on low-income individuals.

It will be ensured that conversions of vehicle propulsion technologies allowing low-emission mobility will be considered in car, vehicle and power source taxation.

A reform of employment-related motoring benefits will substantially favour the choice of low-emission vehicles. Electric vehicle charging benefits will no longer be taxable. A concurrent reform of the taxation of other employment-related benefits will also provide more equitable support for non-motorised modes and public transport, and for the use of mobility services (Mobility as a Service, MaaS). Legislation will be introduced enabling traffic congestion charging to be introduced in city regions, with the aim of managing traffic.

Finland is in favour of expanding emissions trading to all aviation emissions with a climate impact. Introducing a tax on aviation fuel or a flight levy throughout the European Union or globally is another option that may be studied.

The VAT exemption for products valued at less than EUR 22 imported from outside the European Union will be abolished from the start of 2021 at the latest. This will increase VAT revenues by an estimated EUR 40 million. In addition to reducing emissions from transport, this reform will shrink the grey economy and improve the competitiveness of domestic retailing.

Promoting a circular economy

By the spring 2020 government discussion on spending limits, the Government will comprehensively investigate the conditions for using taxation policy to promote a circular economy, for example through a broadly based tax on packaging made from non-renewable natural resources, a tax on energy and carbon dioxide emissions from waste incineration, and an increase in the waste tax levied on landfill waste. The objective is to implement the taxation changes from the beginning of 2021.

Emission-based consumption tax

Life cycle emission assessments of food and other consumer products will be developed with a view to directing consumption taxation in ways that allow for impacts on climate and the environment.

Mining taxation

Mines will be transferred to category I electricity tax and removed from the scope of the industrial energy tax rebate system. The prospects for introducing a new mine tax will be studied in order to ensure that society is reasonably compensated for mineral wealth extraction. The possibility of taxing profits on the sale of mining rights in Finland even when foreign corporations hold these rights will be investigated.

Objective 4

Taxation incentives for employment and private enterprise


Taxation of earned income

While the Government does not consider it appropriate to reduce earnings taxation in general when the economy is growing normally, it will nevertheless set aside EUR 200 million for a modest reduction in income tax to compensate for increases in indirect taxes affecting employees, pensioners, entrepreneurs and the self-employed in the low and middle-income bands. The solidarity tax will continue until the end of the Government’s term of office. Taxation of earned income will be adjusted annually in line with the rise in earnings and inflation.

Earned income subsidy and promotion of labour mobility

The prospects for introducing an earned income subsidy implemented in respect of state income tax will be investigated by the year 2022. This would mean that taxation of earned income could be negative for those employees, pensioners, entrepreneurs and self-employed people who are in the low-income band. The earned income subsidy would provide an employment incentive in such areas as part-time and gig work, and would also extend the progression of income taxation to lower earning levels where no tax is payable on earned income. The preparation work will study how earned income subsidy can be appropriately combined with other benefits.

Mobility of labour both within Finland and into Finland will be promoted by adjusting the taxable component of compensation paid by an employer for removal costs.

Support for small and growth enterprises

Finland is seeking a derogation from the European Union permitting an increase in the VAT threshold for enterprises to EUR 15,000 with a view to easing the administrative burden on small businesses.

The problems that have arisen in introducing the Incomes Register will be studied, with corrections made to facilitate the operations of small businesses and civil society organisations. Support will be offered to newly established small-scale entrepreneurs by introducing more flexible payment schedules for tax prepayment.

The Government will introduce new legislation concerning the remuneration of personnel in unlisted growth companies, using the model devised in preparatory work during the previous government term. EUR 10 million will be reserved for the purpose on an annual basis.

The tax concession for key personnel moving to Finland from abroad will be made permanent.

Objective 5

Promoting health through  taxation


Tobacco tax

The Government will continue the policy of gradually increasing taxation of tobacco and nicotine products by a total of EUR 200 million over its forthcoming term of office. This tax guidance promotes public health.

Alcohol tax

The Government will continue the policy of moderately increasing alcohol tax by EUR 50 million, having regard to changes in the operating environment by monitoring the impact on passenger imports.

Tax on soft drinks

The Government will raise a further EUR 25 million in soft drink taxes, focusing the increase on sugar-rich drinks to reinforce the guiding effect of the tax in the field of public health. The Government will investigate whether the tax could be restructured to exclude fruit and berry juices. The prospects for increasing the tax exemption threshold for small-scale producers will also be studied.

Study of health promotion tax

The Government will study the prospects for introducing a public health promotion tax on such products as sugar. It will also present its views actively at EU level regarding the scope for introducing new kinds of health promotion taxes.

Objective 6

Real estate taxation


The reform of real estate tax seeks to ensure a better overall match between real estate tax values and the fair value of properties. Preparation of the reform must pay closer attention to the true market value of both land and buildings.

The real estate tax reform must not cause unreasonable changes in anyone’s property tax, and will be assessed from the perspective of reasonable change before it is introduced. The reform will be accompanied by an investigation into ways of allowing for the reduced solvency of a taxpayer.

The reform of real estate taxation will consider environmental aspects, with reduced real estate tax payable on offshore wind farms. Areas protected under the Nature Conservation Act will be exempt from real estate tax. Land used for agriculture and forestry will continue to fall outside the scope of real estate taxation.

Objective 7



The introduction of any county income tax will not seek to increase taxation levels.