Finnish companies using offshore tax havens have faced strong condemnation from the country’s politicians since Yle television program MOT revealed the secret Luxembourg tax arrangements used by companies like packaging manufacturer Huhtamaki and construction firm SRV.
“The only reason for these companies to be in Luxembourg is tax avoidance,” said former British tax inspector Richard Brooks, who analyzed the secret tax agreements of the Finnish companies.
SRV has won several public tenders and the company, among other projects, is building a new children’s hospital in Helsinki, the capital of Finland. Part of this hospital is financed by private funders, because the state is not willing to finance it completely by public means.
SRV’s tax agreement describes the company’s Russian investments through subsidiaries in Luxembourg and Cyprus. SRV has built and invested in shopping malls and business centers in St. Petersburg and Moscow.
“Cyprus has a very favorable tax agreement with Russia that allows the money, the rental income, all the gains on the property to come out tax free,” Brooks explained to MOT.
“And they inserted a Luxembourg company, which allows the money to come from the Cyprus’ company directly to Finland, without picking up a tax bill in Finland.”
The founder, biggest shareholder, and president of the board of SRV is Ilpo Kokkila. Kokkila also happens to be president of the powerful Confederation of Finnish Industries, a lobby group with 16,000 member companies and the main representative of employers in labor negotiations with the trade unions. He refused to give an interview to MOT.
SRV chief financial officer Hannu Linnoinen answered MOT’s questions by email. He said international investors wouldn’t invest directly in Russia, but instead preferred to invest through holding companies in Luxembourg and the Netherlands.
“The reasons are that Holland and Luxembourg have good financial sectors and favorable tax agreements with Russia,” Linnoinen wrote to MOT. According to Linnoinen, without subsidiaries in these countries, the company would not have been able to attract any investors to its Russian projects.
When MOT called Kokkila, he refused to comment on the tax agreements and how SRV uses Luxembourg for tax purposes.
Kokkila: “You know exactly what I think and the people think about this issue. I won’t comment.”
MOT: “Why would you not comment? Isn’t it an important issue?”
IK: “Because I’m the head of SRV and the Confederation of Finnish Industries.”
MOT: “Isn’t that an even more important reason to comment?”
IK: “I don’t want to get involved in this.”
MOT: “Don’t you think it’s important to discuss? Many politicians seem to think so.”
IK: “No. Stop nagging.”
Citizens and politicians call for action
The revelations related to Finnish companies in LuxLeaks and the attitude of SRV’s Kokkila caused a storm of debate in Finland. Outraged citizens flooded social media with comments. The issue was debated in Parliament less than a week after the program aired, and several ministers and MPs have commented on the controversy.
The Finance Minister Antti Rinne (Social Democratic Party) described the phenomenon as “serious and unjust.”
“In practice, this means that taxable income is being transferred abroad from Finland without being taxed. And for instance, if you compare it to these budget cuts that are taking effect next year, it basically means that we’re losing three times as much tax revenue as we’re cutting next year,” he said.
Prime Minister Alexander Stubb (right wing National Coalition Party) said to Yle news: "EU needs rules to abolish tax optimization. We need to abolish this kind of problem."
The Foreign Minister, Erkki Tuomioja (Social Democratic Party) told Yle’s Swedish news:
"We have known that Luxembourg has had this policy and it has been an obstacle for the EU to act against tax havens. It's good that this issue has come into the public eye. I hope it will lead to a change. There is a big consensus that we shouldn't tolerate this in the EU.”
Credibility called into question
MP Jukka Kärnä (Social Democratic Party) said that the credibility of the Confederation of Finnish Industries had collapsed after the MOT program revealed SRV’s and Kokkila’s apparent connection to tax avoidance.
“SRV has won several public tenders. In the future we shouldn’t let companies that avoid taxes in Finland to win public tenders,” Kärnä said.
Another MP, Annika Lapintie (Left Alliance), wrote in her blog that Kokkila showed a “shocking indifference and the business sector’s attitude towards the revealing of tax avoidance.”
According to Lapintie, the head of the Confederations of Finnish Industries behaved in an arrogant way towards the journalist asking questions about Luxembourg tax agreement.
From Brussels, the Finnish Member of EU Parliament, Heidi Hautala (Finnish Green Party) also commented on LuxLeaks in her blog:
“LuxLeaks shed light on the tax war going on between EU countries. A war where the rich private persons and successful big corporations win, and the normal citizens lose.”