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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

Eelis Paukku

Eelis Paukku

University of LapplandFinland
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Paukku, Eelis
  
13 lip 2022
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Kategoria artykułu: 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
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© 2022 Eelis Paukku, published by Sciendo
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Different ways of handling charges_

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.

Application of different tax laws in Finland_

Income tax law Business taxation law
The legal form of entity Incomes taxed Private and legal entities. Natural and legal persons.
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.

Different options_

Option Funding or recognition Presumed acquisition cost Sale profits equation Letting profits equation Requirement
1 Recognition Yes 26 4 OT × (FT − FI) ≥ 1.5 × A
2 Recognition No 24 4 OT × (FT − FI) ≤ 1.5 × A
3 Funded Yes 26 6 OT × (FT − FI) ≥ 1.5 × A
4 Funded No 24 6 OT × (FT − FI) ≤ 1.5 × A
Język:
Angielski
Częstotliwość wydawania:
1 razy w roku
Dziedziny czasopisma:
Biznes i ekonomia, Zarządzanie biznesem, Prawo gospodarcze, Ekonomia polityczna, Finanse publiczne i polityka fiskalna, Prawo, Historia, filozofia i socjologia prawa, Prawo publiczne, Prawo podatkowe i rachunkowe
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