How tax policies create unexpected results when interest rates are low: A case study of Finnish housing company debt and private investor return

	Funding charges	Recognising charges
In accounting	Treated as capital.	Treated as income.
In LLHC taxation	No effect until the funding is ended, and then all funded charges are taxed.	Treated as taxable income.
Can be used to cover costs or loan paybacks	Not without ending the funding.	Yes. The only way to do so if the LLHC does not have other income sources.
For an LLHC shareholder who lives in the flat	Monthly fee, not tax-deductible.	Monthly fee, not tax-deductible.
For an LLHC shareholder that lets the flat forward (investor)	Monthly fee, not tax-deductible.	Monthly fee, tax-deductible.
The tax effect for LLHC shareholder that lives in the flat when the flat is sold	Funded charges are added to the acquisition cost of the flat, therefore decreasing taxable profit.	No effect.
The tax effect for the investor when the flat is sold	Funded charges are added to the acquisition cost of the flat, therefore decreasing taxable profit.	No effect.

	Income tax law	Business taxation law
The legal form of entity Incomes taxed	Private and legal entities.	Natural and legal persons.
The legal form of entity Incomes taxed	All incomes that are not taxed according to other business laws.	Business income.
Applicable to undertakings (see, for example, Kukkonen and Walden 2015, chapter 5)	Yes, if they have other than business income, ie income from owning shares of a listed company and if they are not an investment company.	Yes.
Applicable to private persons	Yes.	Yes, if their way of earning is closer to active business than earning a wage or investing their savings.
Applicable to housing investments	In most cases, yes.	In cases where owning flats and property is actually an active business, which requires a significant number of flats (Ossa, 2013).
Treats legal entities and private persons differently	Yes, some tax advantages are only applicable to private persons.	No.

Option	Funding or recognition	Presumed acquisition cost	Sale profits equation	Letting profits equation	Requirement
1	Recognition	Yes	26	4	O_T × (F_T − F_I) ≥ 1.5 × A
2	Recognition	No	24	4	O_T × (F_T − F_I) ≤ 1.5 × A
3	Funded	Yes	26	6	O_T × (F_T − F_I) ≥ 1.5 × A
4	Funded	No	24	6	O_T × (F_T − F_I) ≤ 1.5 × A

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How tax policies create unexpected results when interest rates are low: A case study of Finnish housing company debt and private investor return1