Finnfund’s mission is to promote economic and social development in developing countries. For this to take place, target countries require tax revenue and payment of other fees. Thus, tax revenue and other tax-like fees paid by companies to the public sector in developing countries constitute one of the development aims of Finnfund’s work with the companies it finances. Such revenue allows a country’s government to structure and provide services such as education, health care and infrastructure for its people.
Projects financed by Finnfund must be both economically viable and responsibly implemented, and must generate development effects in the target countries. Finnfund requires the projects it finances to act responsibly with regards to tax and comply with local tax legislation.
Finnfund’s tax policy, introduced at the beginning of 2018, consists of Finnfund’s principles and practices to assess and promote tax responsibility of the projects it finances.
Finnfund’s tax policy is aligned with the common principles on responsible tax practices of the European development finance institutions (EDFI).
In addition to the tax aspects, Finnfund also evaluates the other effects on the economic and social development of the target country, as well as factors such as the likelihood of the project’s success, compliance with environmental and social responsibility, and observance of human rights. The investment decisions are based on a consideration of such issues as a whole.
Finland has committed to the goals of the OECD’s Base Erosion and Profit Shifting (BEPS) project that aims to eliminate profit shifting, which erodes tax base and non-taxation due to asymmetry of tax regimes. Through its operations, Finnfund supports the development of international tax regulation and complies with current legislation and the guidelines issued by its majority shareholder, the Government of Finland. Through is operations, Finnfund also supports the tax responsibility of the companies it finances.
Finnfund does not support aggressive tax planning, which prevents the accumulation of tax revenue from profitable business activities in developing countries.
How do we implement these principles? In this article, we explain how the policy works in practice.