A boost to tax write-offs by Finland’s government means
leasing finance is holding up well in the country despite an
adverse side to the tax changes
Go deeper with GlobalData
The Finnish government has announced
a temporary boost to tax write-offs on plant and machinery during
the current economic downturn.
Lessors are prevented from claiming the
increased allowances. Under certain alternative financing
arrangements, however, lessees can claim the enhanced allowances
where they have sufficient taxable income to make use of them.
The normal rate for fiscal depreciation on
plant in Finland is 25 percent on the “declining balance” basis.
The rate is now effectively doubled for a two-year period.
“For capital expenditure incurred at any time
between 1 January 2009 and 31 December 2010, the taxpayer can write
off 50 percent of the cost in Year 1 and a further 25 percent (that
is, 50 percent of the tax-depreciated value) in Year 2,” said Timo
Torkkel, KPMG’s tax partner for Finland.
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By GlobalDataTorkkel explained: “There are two possible
ways for equipment users to benefit from these 50 percent annual
write-offs while at the same time making use of asset finance.
“One is hire purchase, where the lessee is
treated as the owner of the asset from the start although he will
not actually take legal ownership until the end of the contract.
The other is ‘lease and lease-back’.”
Under a Finnish lease and lease-back, the
equipment user owns the asset at all times. He leases it to the
finance company, which pays for its financial use of the asset
mainly through a single advance rental. The asset is then leased
back to the user on a conventional profile of periodic rentals.
“Leasing finance is holding up very well in
Finland, in spite of the adverse aspect of the new tax moves,” said
Torkkel.
Comment
The normal 25 percent write-off
rate for plant in Finland is exactly the same as the old UK rate
for most equipment before it was cut to 20 percent last
year.
The temporary enhancement during
the recession is distinctly more generous than the UK system of 40
percent first-year allowance.
The normal system of lease taxation in
Finland allows the lessor to claim fiscal depreciation on all
leases where there is no provision for title to pass to the lessee
– much as the UK system was before the advent of the “long funding
lease” rules in 2006.
The ban on lessors claiming the
temporarily enhanced allowances is unusual in continental Europe.
However, this type of discrimination against leasing has been seen
repeatedly in the UK over the past 12 years.
Andy Thompson
