The Minister of Finance Sven Sester replied to the interpellation concerning the taking of the income of enterprises out of the country without paying taxes (No. 103), submitted by members of the Riigikogu Kadri Simson, Marika Tuus-Laul, Märt Sults, Kersti Sarapuu, Mihhail Stalnuhhin, Valeri Korb, Andrei Novikov, Dmitri Dmitrijev, Enn Eesmaa, Tarmo Tamm, Erki Savisaar, Jaanus Karilaid, Priit Toobal, Aadu Must, Viktor Vassiljev, Mihhail Korb, Peeter Ernits, Toomas Vitsut and Mailis Reps on 16 November.
The interpellators referred to the fact that a tax reform had been implemented in Estonia in 2000, the main objective of which had been to replace the taxation of the profit earned by enterprises with the taxation of the profit distributed by enterprises. In the opinion of the interpellators, unfortunately, the profit is not always reinvested in Estonia but is all too often given as a loan with an unlimited term through parent companies. However, an important specification applies here as compared to distribution of dividends. In the case of lending, the enterprise who sends its profit to the parent company does not have to pay the 20 per cent income tax.
The interpellators wished to hear the explanations of the Minister of Finance concerning the situation that has arisen and to hear proposals on the prevention of covert taking out of the profit.
Sester explained that the taking and giving of loans is a usual part of the economic activities of many undertakings. As the profit of companies is not taxed in Estonia before it is distributed, the profit of an enterprise which has not been distributed can be used for making any kind of investments. Granting a loan, including to a person associated with the enterprise, e.g. the parent company, can also be an investment. In the latter case, the market conditions as regards the term, interest, possible guarantees and other conditions of the loan have to be observed when granting a loan. Otherwise an income tax liability arises under the rules of the transfer price if a loan is granted to the parent company at more favourable terms compared to an equal loan between independent persons.
“There are various possibilities to prevent covert taking out of the profit. Starting from the intensification of the monitoring activities of the tax authority, to the establishment of formal rules, including the tax liability for loans granted to the parent company,” Sester said. In his words, in considering possible solutions, it must be taken into account that although these measures may increase the receipt of income tax in a short-term perspective, there is a danger of damaging the attractiveness of Estonia as investment environment, including as a financial centre of international groups, in a longer perspective. “Therefore we have set as our aim in the Ministry of Finance to analyse different possibilities how to restrict covert distribution of profits, without thereby impeding legitimate economic activities,” Sester explained.
The Minister of Finance referred to various studies that have shown that Estonia’s exceptional taxation system has brought additional undertakings here. “I think that, were it not for this taxation system, maybe we would be facing an even more difficult situation today as regards possible investments. It is definitely worth to look at the decrease of investments from some other aspects, and not from the aspect that it is attractive for undertakings to be in Estonia,” Sester said.
“The picture of the last six-seven years shows that undertakings have paid out as dividends from one half up to one-third of the profit they have earned. Nor could it be said that undertakings, when they receive profit, do not pay it out and either grant a loan to somebody or keep it on the account,” Sester said. “The dividend policy also shows that undertakings pay out as dividends 33–35% and even more of their profit.”
The Minister of Education and Research Jürgen Ligi replied to the interpellation concerning the situation on the education landscape (No. 104).
The Minister of the Environment Marko Pomerants replied to the interpellation concerning nature conservation (No. 108).
The Minister of Public Administration Arto Aas replied to the interpellation concerning redundancies in health care (No. 116).
The Minister of Justice Urmas Reinsalu replied to the interpellation concerning legal clarity upon the entry into force of the implementing acts of the Registered Partnership Act (No. 105) and the interpellation concerning the remuneration and activities of bailiffs in Estonia (No. 111).
The sitting ended at 7.31 p.m.
Video recordings of the sittings of the Riigikogu can be viewed at https://www.youtube.com/riigikogu
Riigikogu Press Service
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