Ã…land, Scandinavia’s little offshore tax paradise?
@ 9:52 am 
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 Picture of Åland. Picture, thanks to Wikipedia. Click to view Wikidedia article.
What does Åland have in common with Jersey, Guernsey, The Canary Islands, Mallorca + Menorca, Madeira, San Marino, Andorra, The Isle of Man, Gibraltar, and so on? Well, many of them are remote places, separated from the continent by water. Some of them are in the mountains. All of them are small places with a small population of people. Some of them are sovereign states while others are autonomous territories of another country. Many of them get a lot of tourists each year - some get more in the winter (ie The Canary Islands) and some get more in the summer (Åland). The Åland Islands get 1-2 million people going through there a year.
Ã…land is an island archipelago which has a lot of rocky island outcroppings located between Finland and Sweden in the Baltic Sea. The main island is large enough to give an impression that there is a lot of open land there. The outer archipelago is a different story, though. In Brändö, they say there are 500 people there, but 1000 islands. It is the photo-negative image of Finland with its plentiful lakes - Ã…land has plentiful islands. It has a bit warmer and sunnier climate. There are trees that grow there that don’t in Finland, like Taxus baccata (European Yew).
Statistically, Ã…land shows that it has wealth clearly above the Finnish average. If you are in Mariehamn, it does look neat and clean. There are some shipping businesses based there. Much of the Finnish potato chips come from there because the potatoes are bigger, due to the plentiful sunshine in the summer from Ã…land being too small to disrupt the weather patterns enough to cause rain and thunderclouds in the summer, unlike what happens over mainland Finland and Sweden.
If you visit the outer archipelago, it won’t appear very wealthy at all. In fact, it looks quite impoverished with run down buildings and things generally in bad or worn out condition. I lived there 2 summers in the outer archipelago in Brändö, and the people there work many different careers in order to make ends meet. People fish, hunt, farm what little land there is, have greenhouses, build, repair, work for the municipality, pick tomatoes, pack fish, farm fish, work in tourist cafes, rent cabins, and so on. The second summer I was there, Finland had joined the EU and, instead of making trade and movement of goods more free, it worsened there. Many of the goods were bought from Finland, and were charged with 17.5% or 22% VAT. They were charged 17.5% or 22% VAT again in Ã…land. Then the person buying the goods needed to apply separately for a refund for the VAT paid to Finland. This happens because Ã…land has the same status as The Canary Islands and The Channel Islands of being outside the VAT area of the EU.
What Ã…land doesn’t have in common with those other places is that it is not a tax paradise. Because of their geographical disadvantage, most or all of those other places have lower or no VAT and, in many cases, have other lower taxes in order to make it easier for people to live there. Many of those other places give special tax discounts or tax free status to businesses that are based there, but do business elsewhere, not locally. Some of them also have banking opportunities, and are known as “safe” places to keep your money. So instead of being Scandinavia’s tax, shopping, and banking paradise, it is an expensive tax hell. The only tax-free shopping is for alcoholic drinks and tobacco (addictive drugs) on the boats going to and from there. Ã…land has special status, along with the Canary and Channel Islands that it is outside the VAT area, but its government only chooses to use it to sell addictive drugs on ships.
Åland, if made into a Swiss or Liechtenstein style banking location and tax/shopping paradise, it would make a LOT of money and could possible help repatriate expatriated Finnish wealth where it can be used and invested in and near Finland, but it could also bring in new wealth. The whole Baltic area could and would use it. Russians especially like to keep their money safe from the teeter-tottering of politics, but Russia is not the only country in the neighbourhood that has teeter-tottering politics. But that is up to the Åland people and their government. They can do what they want, since they are autonomous and have their special VAT status. They can have a tax hell or a tax paradise.
Right on! Them thar islanders really are too stupid for their own good. So let’s bring them back into the fold, since they are obviously too ignorant to run their own province as they see fit.
Thank god for the masses of besserwissers who obviously know the local conditions better than the citizens themselves. I think they should be let run the province for the stupid natives. It worked so well in the 19th century.
Comment by Fat Bastard — Wed, Nov 28th, 2007 @ 11:08 am
Tax havens are, politically speaking, a pain in the arse. If the point is to let rich people avoid taxes then they are also unnecessary. Everyone knows that rich people don’t really pay taxes.
Comment by Finnsense — Wed, Nov 28th, 2007 @ 11:12 am
Wouldn’t it be better to have rich people “not pay taxes” here, rather than in the Cayman Islands.
Comment by Sirkuspelle — Wed, Nov 28th, 2007 @ 11:18 am
Interesting article Sirkuspelle!!
Comment by Phil — Wed, Nov 28th, 2007 @ 12:19 pm
So let’s bring them back into the fold, since they are obviously too ignorant to run their own province as they see fit.
Wasn’t that the point of Sirkuspelle’s article? To give the Ã…landers even more autonomy so they can make more important decisions about their own land?
Comment by Phil — Wed, Nov 28th, 2007 @ 12:21 pm
I say give the islands independence. But the problem seems to be that they do not want it. There is a Independence Party, but it does not have any real support.
I have it from a Professor of Economic History that the Ã…lands are a net tax burden on Finland proper: independence would make them pay for their own affairs, which would benefit both the islands and mainland Finland.
Politically, though, the Republic of Ã…land would undoubtably gravitate towards the Swedish orbit, so there would be a loss of political prestige in store for the Finnish government. The Swedes, on the other hand, could regain some of that well-earned imperial superiority for again having a satellite state of their own…
Comment by Drakon — Wed, Nov 28th, 2007 @ 12:32 pm
There certainly is loads of Finnish wealth in various parts of the world. Previous governments have chased it away, which probably explains why Finland is at the bottom of the European heap when it comes to wealth statistics—in particular, when income-producing wealth is considered.
People move away, become successful, and can’t come back due to discriminatory policies.
I wonder how much this is responsible for the low-salaries in Finland. There’s not much of a local economy, so no competition for workers.
Most companies in Finland are owned with foreign capital. It places the tax burden on the working population, since any profits flow out of the country to be taxed elsewhere.
Will Finland ever learn?
Comment by Kristian — Wed, Nov 28th, 2007 @ 12:43 pm
Another problem I forgot to mention about Ã…land is that young people leave for Sweden and Finland, since there is not much to do. Ã…landers also can’t sell any land, except to other Ã…landers.
Comment by Sirkuspelle — Wed, Nov 28th, 2007 @ 1:18 pm
Hmm, Ã…land has essentially no unemployment and is busy trying to recruit workers from outside Ã…land. It is also one of the richest provinces not only in Finland, but the whole Nordic countries, so I would say it is doing ok. It’s hardly a tax hell either, the municipal tax rates are amongst the lowest in the whole country.
However, you should note that due to the EU’s odd ruling, Ã…land is likely to lose a lot of tax income to Sweden because of the snus ruling. It’s likely the boats currently flying Ã…land’s flag will outflag to Sweden so that they can continue to sell snus.
Comment by JG — Wed, Nov 28th, 2007 @ 2:08 pm
JG—that just struck me as hilarious!
Tax paradise: NO, can’t have that.
Getting rich on people’s mouth cancer: OF COURSE!
LOL!
Comment by Kristian — Wed, Nov 28th, 2007 @ 2:27 pm
Kristian, I agree with you in so much that smoking is not a good and should be reduced… that said, Sweden has the lowest rates of smoking related cancer in the EU because of snus (yes, snus is bad for you, but nowhere near as bad for you as cigarettes). But anyway it’s more the hypercritical nature of the EU decision I was trying to highlight. At the end of the day, the EU is basically saying it is legal and acceptable for Sweden to get rich on people’s mouth cancer, but not Finland. Slightly a strange position to hold!
Comment by JG — Wed, Nov 28th, 2007 @ 2:31 pm
In case you didn’t know, “snus” is “snuff” in English. It is powdered mouth tobacco, which can also be in little bags. In Finnish it is “nuuska”. One day on a Viking boat a few years ago, I realized what “nuuskamuikkunen” means. (=Finnish name of one character from the Moomins)
Comment by Sirkuspelle — Wed, Nov 28th, 2007 @ 3:36 pm
Regarding snuff, the European Commission was working on an infringement procedure against Finland for selling snuff. If Sweden starts selling and taxing it, they have the same thing ahead. Oral usage of tobacco is the most likely way to get cancer of all the ways of using tobacco, except snuffing it, which no-one is stupid enough to do any more.
It is interesting how Scandinavian countries build elaborate taxation systems and legislation around peoples’ addictions.
Comment by Sirkuspelle — Wed, Nov 28th, 2007 @ 3:41 pm
Sirkuspelle, glad you realised about Snusmumriken as his original name is!
Sweden does sell snus!! It negociated an exception when it entered the EU. It was a fairly big issue in the Swedish EU referendum debate.
The problem in this case, is that it gives Sweden an unfair advantage. It means that Ã…land and Finland flagged ferries will now probably change to the Swedish flag, so they can continue to sell snus. This means a big loss of revenue, especially to Ã…land … because the workers onboard the ship are taxed in the country it is flagged in.
Also, the European commission was very unequal. It threatened Finland with fines for selling snus, but not Estonia where EU law also naturally applies. So, it means that Tallink can continue to sell snus on its boats. Sometimes the EU acts in very strange ways!
Comment by JG — Wed, Nov 28th, 2007 @ 4:00 pm
The Ã…land Islands get 1-2 million people going through there a year.
Hrm…yeah, right if the ferry passengers touching Mariehamn at 03 am are calculated in. Not people sleeping overnight or visiting Mariehamn purposefully - those numbers are a bit smaller. It is also because of the ferries there is a “huge crime rate” in Ã…land - all the brawls on the boats fall under their jurisdiction.
Comment by Hank W. — Wed, Nov 28th, 2007 @ 5:08 pm
BTW did you know every island in the archipelago has a name except the “mainland”
And if people from Mariehamn just think they’re next from God because they are. Thats a bad pun… the surrounding county Jomala - is pronounced as Jumala - Finnish for God.
Comment by Hank W. — Wed, Nov 28th, 2007 @ 5:13 pm
Hank, when I was there, it sounded more like they were saying “jummala” when saying Jomala. There are just too many islands to remember the names of.
I am studying all the news I can find now from the last 10 or so years about tax paradises. Apparently, there are literally billions and billions of Euros of Finnish money in tax paradises and strict-banking-secrecy countries. Some of the banking-secrecy countries don’t even have better tax rates than in Finland, like Luxembourg.
Comment by Sirkuspelle — Wed, Nov 28th, 2007 @ 6:39 pm
Maybe it would have been a fair thing to tell something about the political history of the Ã…land Islands…
Comment by Täh? — Wed, Nov 28th, 2007 @ 8:37 pm
It all reads behind the Wikipedia link.
Comment by Hank W. — Wed, Nov 28th, 2007 @ 9:06 pm
Yes Ã…landers, leave the second best performing “proper” economy in the world and make Ã…land a tax haven! Then the idi amins of this world will start giving money to the poor in the outer archipelago (probably because they’re such nice people). In twenty years when the decent folks and states finally get what they want and the tax havens are finished off, then you can go back to herring fishing if there’s still life in the Baltic. Sounds like a plan if you happen to hate those little vermin sucking our tax money into their already inflated bellies. I don’t, honestly.
Comment by Anonymous — Thu, Nov 29th, 2007 @ 12:04 pm
http://www.aland.ax/filmeng.pbs
There is a video (in English) there about Ã…land from the Ã…land government. Also available in Swedish and Finnish.
Comment by JG — Fri, Nov 30th, 2007 @ 2:51 am
#20- What do you mean by “proper” economy in the above post?
Comment by Punter — Fri, Nov 30th, 2007 @ 7:45 am
A proper economy is not based on a single commodity or service, like oil or hiding blood money. Those economies will be wiped out sooner or later. On the other hand, a proper economy is diverse and flexible and will survive so long as the global economy survives.
Comment by Anonymous — Fri, Nov 30th, 2007 @ 12:29 pm
So the diverse “real” economy in Ã…land will continue to flourish when the oil rich economies of say The Gulf States or blood money economy of maybe Switzerland collapse? Is that your point? I’m just searching here mind you…..
Comment by Punter — Fri, Nov 30th, 2007 @ 2:35 pm
24. Exactly. Do you really think the oil reserves in the Persian Gulf will last forever? Do you really think that US and UN will let those tax havens launder blood diamond, drug and weapon trafficking proceeds indefinitely? I don’t think so. Well, at least not those that are not directly laundering CIA or US mega corporation monies.
Comment by Fat Bastard — Fri, Nov 30th, 2007 @ 2:57 pm
The Gulf States are using their new wealth to secure their long term future regardless of what is powering our cars. As for the Swiss economy and other off shore havens, they too will continue to flourish as long as the powers that be have a dedicated interest in seeing them survive. There really is nothing The UN can do about them and The US has that self interest I mentioned.
As for Ã…land, I don’t know enough about it’s economy but it will probably continue along as it does today so long as shipping brings in revenue and it maintains it’s position within EU rules. Finland on the otherhand I am more pesimistic about. Without a major overhaul of the economy and role of the State in it, we will continue to distance ourselves from the new members of The EU which will sweep past us and take advantage of the lessons of the past.
Comment by Punter — Fri, Nov 30th, 2007 @ 3:16 pm
Yes, it’s true that quite a few of the new member state have lately grown almost as fast as Finland, hell, a couple of them even faster. The way things are going, Hungary’s economy will be bigger than that of Finland’s year 2345. Yes but what about Estonia? Soon their main import, butter, will really start challenging Finland’s industry. You guys are hilarious.
Comment by Anonymous — Fri, Nov 30th, 2007 @ 8:35 pm
I think that year 2006 Finland’s economy per capita grew faster than any other economy excluding Luxembourg and other city states. So perhaps Finland is now THE best performing “proper” economy.
Comment by Anonymous — Fri, Nov 30th, 2007 @ 8:40 pm
“So perhaps Finland is now THE best performing “proper†economy.”
I assume you are comparing to western Europe. Most of those countries are already economically mature and wealthy. Therefore it’s natural that they grow at lesser rates. Finland is still developing, so lots of room to grow.
Conversely, eastern European countries are growing faster than Finland and w. Europe—Estonia, Czech R., Slovakia, Poland etc.
Interestingly, but perhaps not unexpectedly, Hungary has low-growth rates; it’s high-tax economy is causing a major drag. It’s one of the few eastern European economies that is actually growing slower than Finland.
Comment by Anonymous — Sat, Dec 1st, 2007 @ 11:40 pm
Looks like Gambia beat Finland by a fraction. Equatorial Guinea is growing several times faster than Finland:
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real)_growth_rate
Comment by Anonymous — Sat, Dec 1st, 2007 @ 11:44 pm
Heh. Try to come up with an economy that produced more euros per capita 2006 relative to 2005 and you at least are on the same page with the rest of us. Gambia, sure, you guys are hilarious!
Is Finland now THE best performing “proper†economy? I think it is, but if any Finn or other rational person (are there rational people reading this blog?) I’d be interested to know.
Comment by Anonymous — Sun, Dec 2nd, 2007 @ 12:09 am
Most of those countries are already economically mature and wealthy. Therefore it’s natural that they grow at lesser rates. Finland is still developing, so lots of room to grow.
Heh heh, I just have to comment on this one: is the writer a time machinist from the 60s or a typical American?
Comment by A citizen of the 10th rihcest country in the world — Sun, Dec 2nd, 2007 @ 12:20 am
If Finland has such a great economy, then why is the standard of living so low compared to western Europe?
Comment by Kristian — Sun, Dec 2nd, 2007 @ 1:59 am
If Finland’s standard of living was low compared to western Europe I’m sure you could prove it. (No, a study comparing gross earnings of the highly educated doesn’t prove it, hassu.)
Comment by A citizen of the 10th rihcest country in the world — Sun, Dec 2nd, 2007 @ 12:14 pm
Sorry, it appears to have been net earnings, the study our always so reliable economist was referring to, compared.
I have a plan. Let’s take the retirement payments form the net salary like in many European countries and all of a sudden our “standard of living” “rises” with thousands of euros.
Comment by A citizen of the 10th rihcest country in the world — Sun, Dec 2nd, 2007 @ 12:36 pm
Hey, this was just a suggestion. It seems Finnish business, big and small, makes quite liberal use of offshore tax havens. Even Finnair, for example, sold some of its planes to a Cayman Islands corporation and then proceeded to rent them from the corporation. Imagine if an Ã…land corporation would own Finnair’s planes, making money for the region. There are literally billions and billions of Finnish money going through the Caymans and other tax paradises. This is a general phenomenon throughout Scandinavia. This has been talked about extensively in the Ministry of Finance as “harmaa talous”. In a place where you can be “summarily taxecuted” especially as a small business entrepreneur, there is a lot of incentive to try to safeguard your property, income and money whatever way possible, even if the method is legally diputable.
Comment by Sirkuspelle — Sun, Dec 2nd, 2007 @ 9:39 pm
It seems Finland is already a tax haven for Swedish banks!
http://svenska.yle.fi/nyheter/artikel.php?id=115224
Comment by JG — Mon, Dec 3rd, 2007 @ 2:26 pm
@37 That’s great! I think another thing that plays a part in that is that Finland chucked the wealth tax. Now people are starting to dare to put wealth here. Sweden still has a wealth tax.
Comment by Sirkuspelle — Tue, Dec 4th, 2007 @ 3:36 pm
Every civilized country has either a wealth or inheritance tax, or both.
Comment by Back in the USSR — Sat, Dec 8th, 2007 @ 12:01 pm
Yes! Prostitution of Finland’s and Ã…land’s sovereignty! Lets get dirty money to Ã…land!
ARE YOU COMPLETELY INSANE? THIS IS EXACTLY WHAT OECD, FATF, EU AND EVERYONE ELSE ARE TRYING TO GET RID OF? TAX COMPETITION IS EXTREMELY HARMFUL IN A GLOBAL SCALE.
Comment by Voice of Reason — Sun, Mar 2nd, 2008 @ 1:13 pm