Taxation of non-corporate activities and agriculture and forestry should be reformed by removing the division of income sources and condensing the tax base by eliminating unnecessary deductions, such as entrepreneur deductions and forest gift deductions. When reforming the division of income sources, it must be ensured that the tax base does not narrow adversely.

Condensing the tax base for inheritance and gift taxation

The importance of inheritance and gift taxes will increase in the next few years as the population ages. The large age groups (b. 1947–1951) are both more prosperous than the previous age groups and their heirs. Therefore, the importance of inheritance and gift taxation is being emphasized. Inheritance and gift taxes need to be reformed, as their tax base leaks in two ways.

The Right Choices

First, the tax inheritance tax credit makes it possible to transfer business, farm and investment assets to heirs at a very low tax rate. According to the Ministry of Finance, the advantage is “quite substantial”: on average, the effective, actual tax rate per beneficiary has been 1.6% for transfers of farm assets and 3.5% for transfers of other corporate assets. For others, the tax rate for larger gifts and inheritances could be more than ten times higher, with a maximum of 36 percent tax on inheritances and a 20 percent tax within the family. Such a large difference is problematic both from the point of view of the principle of equality in the Constitution and in practical situations where the beneficiaries of the same inheritance are treated differently. Therefore, it needs to be narrowed.

The Complications

The problem is, on the one hand, that in certain situations not all heirs who continue the business can benefit from the relief, and on the other hand, that the relief can be obtained even if they only participate nominally in the continuation of the activity. The heirs must therefore be able, by mutual agreement, to obtain relief which equalizes the difference. The tax relief must also be clearly limited to productive assets, as it can now also be applied to investment assets. It is not fair that securities held in the name of a company can be transferred to heirs at a much lower rate than gifts and inheritances received by other individuals. In taxfyle.com/small-business-tax-calculator you can find the best deals for you.

The Tax Reliefs

The corporate inheritance tax relief does not take into account the fact that a new entrepreneur or farmer may be outside the family circle. Continuing business within the family is appreciated, but an owner outside the family can also ensure the continuation and growth of operations in Finland. Therefore, the continuation of profitable operations must be ensured, if necessary, by means of support other than tax relief.