<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>Finnish limited liability housing companies (LLHCs) are increasing their debt ratios quickly. In this paper, I argue that current tax rules encourage this behaviour owing to strong shareholder tax incentives for a higher debt ratio. Although tax rules are designed to be neutral, Finnish tax rules related to selling assets are profitable for LLHC shareowners in cases where debt rates are high owing to taxable profits being based not on actual acquisition costs but on presumed acquisition costs derived from the selling price. Both tax deductibility of LLHC financial charges and the presumed acquisition cost rule are from a time when interests and inflation were higher than they currently are. Both of these were used to counter the adverse effects of inflation and interest for asset owners and LLHC shareholders. Currently, when inflation and interest rates are close to zero, these rules have created an incentive for a behaviour that increases risks for the whole economy and reduces tax income.</p>
</abstract>

Finnish limited liability housing companies (LLHCs) are increasing their debt ratios quickly. In this paper, I argue that current tax rules encourage this behaviour owing to strong shareholder tax incentives for a higher debt ratio. Although tax rules are designed to be neutral, Finnish tax rules related to selling assets are profitable for LLHC shareowners in cases where debt rates are high owing to taxable profits being based not on actual acquisition costs but on presumed acquisition costs derived from the selling price. Both tax deductibility of LLHC financial charges and the presumed acquisition cost rule are from a time when interests and inflation were higher than they currently are. Both of these were used to counter the adverse effects of inflation and interest for asset owners and LLHC shareholders. Currently, when inflation and interest rates are close to zero, these rules have created an incentive for a behaviour that increases risks for the whole economy and reduces tax income.

How tax policies create unexpected results when interest rates are low: A case study of Finnish housing company debt and private investor return<sup>1</sup>

Nordic Tax Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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

Finnish limited liability housing companies (LLHCs) are increasing their debt ratios quickly. In this paper, I argue that current tax rules encourage this...

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

Article Category: Article

Data publikacji: 13 lip 2022

Zakres stron: 45 - 57

Otrzymano: 10 lut 2021

Przyjęty: 08 lis 2021

DOI: https://doi.org/10.2478/ntaxj-2021-0007

Słowa kluczowe
limited liability housing company, tax advantage, inflation, interests

© 2022 Eelis Paukku, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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

Article Category: Article

Data publikacji: 13 lip 2022

Zakres stron: 45 - 57

Otrzymano: 10 lut 2021

Przyjęty: 08 lis 2021

DOI: https://doi.org/10.2478/ntaxj-2021-0007

Słowa kluczowelimited liability housing company, tax advantage, inflation, interests

© 2022 Eelis Paukku, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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

Słowa kluczowe
limited liability housing company, tax advantage, inflation, interests