January 15, 2018
Finnfund has renewed its tax policy. Tax policy consists of Finnfund’s principles and practices to assess and promote tax responsibility in its own operations and in the projects it finances.
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.
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.
Tax policy is based on common policies and cooperation between European development finance institutions in the development of responsible tax practices. Its practical tools consist of three elements: investment criteria, agreement terms and conditions, and monitoring.
The aim was to prepare the tax policy transparently and listening to various stakeholders. Last autumn Finnfund organised two discussion sessions and asked for feedback on the discussion paper, which is the basis of the tax policy. Finnfund would like to thank everyone who participated in the discussion.
“We are grateful for the good and constructive discussion that we have had with many different actors during the process. The basis and the challenges of international and, in particular, developing country financing are somewhat different than in Finland. Finnfund’s mission is to channel financing to the poorest and most fragile countries where tax systems are often just beginning to develop. It is important that Finnfund and other development financiers promote good practices both in terms of tax liability and other corporate social responsibility,” says Jaakko Kangasniemi, CEO of Finnfund.
The new policy will apply from 1 January 2018 to all new investment decisions.
Tax revenues in developing countries are one of Finnfund’s development effects
Finnfund’s mission is to promote economic and social development in developing countries. For this to take place, the 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.
In the policy, Finnfund focuses on its own role and on the issues that the development financier can have an effect on in their projects. Finnfund monitors the taxes and tax-like payments paid by the investee companies each year as part of the development impact assessment.
Finnfund follows international development
There is a lot discussion about the development of international tax regulation and the prevention of tax evasion both in Finland and globally. Supporting the taxation capacity of developing countries is also one of the goals of Finland’s development policy. Finland has committed to the goals of the OECD’s Base Erosion and Profit Shifting (BEPS) project, which tackles tax avoidance caused by asymmetry of tax systems and profit shifting that erodes tax base.
Through its operations, Finnfund supports the development of international tax regulation and the tax liability of the companies it finances. Finnfund also co-operates with other other European Development Finance Institutions (EDFI).
Renewed tax policy is part of this development, and Finnfund will continue to monitor the development of international tax regulation and develop its own expertise in tax matters. Tax policy and practices are updated when needed.
Jaakko Kangasniemi, Managing Director, CEO, jaakko.kangasniemi(a)finnfund.fi, tel. +358 40 577 7676
Päivi Kuitunen, Chief Legal Councel, paivi.kuitunen(a)finnfund.fi, tel. +358 40 760 6628
Kaisa Alavuotunki, Senior Development Impact Adviser, kaisa.alavuotunki(a)finnfund.fi, tel. +358 41 522 3693