Mutual funds investments fleeing Sweden for Finland and Finland for Luxembourg
@ 8:25 pm partly from this article, from hs.fi (in English)
Apparently, Swedish people are moving their mutual funds investments from Sweden to Finland. The article indicates that there is a slight tax advantage and there is a lot less beaurocracy in Finland. The Swedish capital gains tax is 30% as opposed to Finland’s 28%, Simultanously, mutual fund investments are going from Finland to Luxembourg. Luxembourg’s capital gains tax is 22.88%, which offers a small tax advantage, but another advantage offered by Luxembourg is strict anonymity (banking privacy) and less bureaucracy with the identity of the owner of the money.
I also suspect that Finland abolishing the wealth tax may end up also contributing to this inward flow of money phenomenon, if people are able to feel safe keeping their money here. I am not sure if a Swede would be charged wealth tax on wealth in Finland, but that can also make bureaucracy even easier, when wealth need not be reported. On the other hand, it was high time for it to go. If you think about it, having wealth tax is like taxing someone for his or her job skills, as opposed to taxing the money he or she earns doing the job. France and Sweden still have wealth tax. Doh!
Other countries in the EU have similar tax levels for mutual funds, but Belgium stands out with its exempt status for private individuals on both short and long term mutual fund investments. It is very smart of a country to do all it can to encourage its citizens to save and increase their money. It is good in the long run for the economy, as opposed to thinking “what can we get right now?”. In the US, one can fall into a 35% capital gains tax category and Australia even more. Canada charges 30% on half the capital gain, which is 15%. (Yes, it’s a silly way of doing things.) The tax competition inside the EU seems to be doing some good.
Again, taxes are the most evil thing a government can do it its own people. Its gentle slavery, but the effect is the same.
Comment by winter, "Yea, Proton Power, now in remission" — Tue, Dec 4th, 2007 @ 8:42 pm
Yawn!
Comment by bored — Tue, Dec 4th, 2007 @ 8:52 pm
Considering that Finland is a country where people’s personal financial information is floating around on bit torrent servers around the world, it’s not a surprise that mutual fund investors have data privacy concerns. Hence, Finnish investment companies are responding to customers’ wishes by registering their mutual funds in Luxembourg. It’s the only smart way to do it if they want to keep the business.
Comment by Kristian — Tue, Dec 4th, 2007 @ 9:26 pm
Just thought I’d correct the original post but it’s not actually the Swedish people moving their investments to Finland but rather the mutual funds themselves moving over to Finland to get rid of the double taxation of profits. And as far as I know (and I am no tax expert), the Finnish wealth tax (or now the lack thereof) or the lower capital gains tax has nothing to do with this as the Swedes would get taxed at the national rates anyway.
Also I do not think the lower capital gains tax in Luxembourg has nothing to do with the fact that mutual funds are being domiciled in Luxembourg as foreigners would not benefit from that. Instead there are most likely other perks such as (further) reduced bureaucracy and lower administrative costs and perhaps some taxation issues that directly benefit the company running the mutual funds (and hopefully indirectly the investors through a lower administrative charge on the funds invested).
Comment by br — Tue, Dec 4th, 2007 @ 11:15 pm
br, you are right. People are taxed according to their ‘tax homes’; not where the mutual fund is located. Any advantage/disadvantage is to the investment company itself; not to the investor. I doubt there is a difference in bureaucracy between Luxembourg and Finland—or at least nothing significant.
The main difference is that Luxembourg has adequate data privacy practices; investors seem to feel that Finland does not. That’s why Finnish investment companies are registering their funds there. Makes one wonder how much Finnish capital is floating around abroad, due to the privacy problems in Finland.
Comment by Kristian — Tue, Dec 4th, 2007 @ 11:30 pm
Kristian, could you provide some sources for your assertion that “Finnish investment companies are registering their assets in Luxembourg because Luxembourg has adequate data privacy practices”, as I would really like to see them. Even though you seem quite certain of this, the HS is does not have any information thereof.
Comment by Drakon — Wed, Dec 5th, 2007 @ 12:12 am
Kristian, it’s definitely due to tax reasons. One of my friends works for Aktia in Luxemburg. Somehow the banks still save some tax money by doing things there. It’s not to do with privacy laws.
Comment by JG — Wed, Dec 5th, 2007 @ 12:13 am
Drakon,
Well, it’s from personal experience. Obviously nobody wants their financial position exposed for everyone to inspect. I certainly don’t. That’s why Jari Kivihuhta, director of Nordea’s mutual fund company, lists discretion as an advantage:
Even putting that aside, the general climate in Finland is, “We don’t want people with investment capital.” And market players respond by investing outside the country.
Fortunately, Nordea has the good business sense to offer Luxembourg-based products that are tailored to the savvy investor.
Comment by Kristian — Wed, Dec 5th, 2007 @ 1:26 am
“We don’t want people with investment capital.†and no Billionairs who will invest and create jobs, jobs, and more jobs.
Something a government can’t do. Sorry if the facts are not what you want to see here, but thats reality folks.
Comment by winter “Yea, Proton Power, now in remission†— Wed, Dec 5th, 2007 @ 2:14 am
i pay less tax in finland than i ever did in america. and these types of posts bore the shit out of me. give us something cultural once and a while, not this paranoid jerk-off shit. give us an intelligent topic-something that finn-bunglick and his stable of suvs and boats etc will never understand.
Comment by willie — Wed, Dec 5th, 2007 @ 4:55 am
@10 So are you unemployed or do you work at Hesburger?
If you don’t pay much tax here, you don’t make very much money. I pay quite enough tax here, but I live with it.
Comment by Anonymous — Wed, Dec 5th, 2007 @ 8:48 am
You guys need more SISU you can do it! xD
/whine
Comment by Mo — Wed, Dec 5th, 2007 @ 12:08 pm
If you think about it, having wealth tax is like taxing someone for his or her job skills, as opposed to taxing the money he or she earns doing the job.
Eh, what. If that’s an analogy, then it’s bad cause I don’t get it. Anyway, there’s nothing that weird in taxing wealth. Finnish wealth tax, before it was abolished, was 0,8% of the personal wealth that was over the lower limit of 250 000 euros. It certainly wasn’t a huge burden for anyone. You can argue whether tax on wealth is a good thing and give well-founded arguments either way, but it’d be false to say that such a tax would be somehow ridiculous.
Comment by s. tanger — Wed, Dec 5th, 2007 @ 4:12 pm
11. People who make “much money” here pay mostly flat 28%. Otherwise they don’t make much or just stupid.
Comment by Anonymous — Wed, Dec 5th, 2007 @ 5:14 pm
@13 it is ridiculous to have that kind of tax on static money or property, considering that the government is getting 28% on any capital income that that >250K of wealth is making. Having the wealth tax was senseless. Almost .8% of tax on 250K is 2000 Euros. It is quite easy to have 250K of wealth, but not make much money. Farmers, for example, easily go over that limit. Many homeowners have homes, which value goes over that limit. It has also led to a lot of wealth fleeing the country - more than you can probably imagine.
Comment by Sirkuspelle — Wed, Dec 5th, 2007 @ 5:29 pm
“i pay less tax in finland than i ever did in america. and these types of posts bore the shit out of me.”
Now I know why our PISA scores are so low in the US. We’ve got people like you taking the tests. Is your last name Pickler by any chance?
Comment by maaksalaatikko — Wed, Dec 5th, 2007 @ 5:54 pm
Sirkuspelle,
you could not be more correct. The wealth tax in Finland was very senseless. There were lots of practical issues. How did they value wealth? And did wealth tax cause people to structure their investments to reflect the lowest possible wealth figure? Investments overseas to avoid it completely perhaps?
It was all very unhealthy, and it’s one reason why Finland is poor today. Fortunately, it was decided that maybe having wealth inside the country isn’t such a bad idea from an economic developement perspective. So they abolished the tax.
Comment by Anonymous — Wed, Dec 5th, 2007 @ 6:00 pm
It is all unhealthy. Thats what taxes are to the output of any nation.
Gee, have low wealth, with high taxes.
Or have high wealth, walmart, with low taxes.
Simple.
Comment by winter, "Yea, Proton Power, now in remission" — Wed, Dec 5th, 2007 @ 8:07 pm
s. tanger: “was 0,8% of the personal wealth [...] It certainly wasn’t a huge burden for anyone.”
Hmmmm. If a person receives 6.5% return on his investment, then the .8% wealth tax reduces it to 5.7% (6.5 - .8 = 5.7).
That’s slightly over 12% reduction in profit (before income taxes!).
Another way to look at it: That means someone who would otherwise be in the 30% income tax bracket is now paying over 42% of his income to taxes due to the wealth tax.
Not a burden, eh? Maybe you should analyze what motivates investors. I guarantee that your type of jealousy will only drive investors and their capital away.
You’d be more legitimate if you advocate taxing unproductive land. That would actually help society.
Comment by Kristian — Wed, Dec 5th, 2007 @ 9:21 pm
Tax the rich is common. No one thinks it hurts them.
But it does. All are hurt when the folks who do things (Billionairs), stop working and creating jobs.
Comment by winter, "Yea, Proton Power, now in remission" — Wed, Dec 5th, 2007 @ 9:27 pm
Winter: Since you seem to be such a free market fan, you might be interested in reading about the history of Free Banking Era. Would you like your notes as pink…?
“The Free Banking Era: More than 30,000 Different Notes in Circulation
Suppose you found a wallet filled with paper money sometime during the Free Banking Era, which was from 1836 to 1866. This wallet might contain a yellow two-cent note issued by the New York druggist Matthew’s Bros. You also might find a three-cent note issued by the Peabody Ladies Furnishing Store in Massachusetts. The most attractive of the bunch might be a pink 25-cent note issued by the Hyson Tea Company in New York. Imagine using some of these notes to pay for something at the store!
During the Free Banking Era, consumers could not be sure that merchants would accept their paper money. Although merchants were able to certify currency as genuine by consulting registries called Bank Note Reporters, approximately one-third of all paper money during the Free Banking Era was estimated to be counterfeit.
Before the Free Banking Era went into effect, it was difficult for banks to obtain a commercial charter. During the Free Banking Era, state authorities were created with the sole purpose of issuing bank charters. Any private or municipal authority could operate a bank as long as it could satisfy a minimal set of conditions. The instability of the Free Banking Era was especially obvious in the state of Michigan, where the State legislature passed the General Banking Law of 1837. This law immediately transformed Michigan’s banking industry. More than 55 banks were organized in Michigan within one year of the liberal banking law–most of them with the sole purpose of issuing paper money.
Almost all of the banks formed under Michigan’s General Banking Law failed or went broke within two years. Some of these “broken banks” attempted to fool bank inspectors by keeping a barrel of nails with a top layer of gold coin as their “reserves.” The Bank of Battle Creek, Michigan, had its teller, Tolman W. Hall, run out the back door whenever a noteholder would enter the bank. Another unscrupulous tactic was to locate banks’ main offices in remote wilderness areas. These “wildcat banks” would often shuttle the same sack of coins from one location to another to convince the occasional bank inspector that the bank was solvent. One wildcat bank, the Farmers Bank of Sandstone, reportedly offered to redeem its notes in the local merchandise: a sandstone whetstone for each one-dollar note. ”
Boy, you Americans know how to cheat
“In this period, only state-chartered banks existed in a free banking system. They could issue bank notes against specie (Gold and Silver coins) and the states regulated their reserve requirements, interest rates for loans and deposits, the necessary capital ratio etc. The Michigan Act (1837) allowed the automatic chartering of banks that would fulfill its requirements without special consent of the state legislature. This legislation eased creating unstable banks even further, lowering the supervision by the states that adopted it. The real value of a bank bill was often lower than its face value, and the issuing bank’s financial strength generally determined the size of the discount. By 1797, there were 24 chartered banks in the U.S., while with the beginning of the Free Banking Era (1837), there were 712.
The banks were unstable in terms of longevity compared to today’s commercial banks. The average lifespan of a bank was five years; about half of the banks failed, a third of which because they couldn’t redeem their notes (how they went out of business).”
Sources:
http://www.frbsf.org/currency/expansion/history/text2.html
Wikipedia: History_of_central_banking_in_the_United_States
Comment by tim73 — Wed, Dec 5th, 2007 @ 10:34 pm
The Town of Nokia has contaminated water supply. Needs military assistance.http://www.yle.fi/uutiset/kotimaa/oikea/id76750.html
Comment by Auriga — Wed, Dec 5th, 2007 @ 11:52 pm
timmy timmy timmy
so what has bank regulation have to do with taxes?
Comment by winter “Yea, Proton Power, now in remission†— Thu, Dec 6th, 2007 @ 1:53 am
Finland has a long history of giving extra advantages to the rich (and farmers). The latest incarnation made them exempt from paying both inheritance and estate aka wealth taxes. This is unheard of in any other civilized country–if Finland can be put in the civilized category anyway. “We” don’t want to mess with the money of the elite, God forbid! Are we becoming a kind of aristocratic country even faster than the USA?
The farmers can now give away their farms and forests to their kids without any taxes. That in addition to the Russian export customs will make Finnish forest soon so expansive that the industry will shut down even more factories. Wink, wink to those who have money to invest. Buy now, if it’s not too late already, and sell next year.
Comment by Anonymous — Fri, Dec 7th, 2007 @ 1:14 pm
…advantages to the rich (and farmers). The latest incarnation made them exempt from paying both inheritance and estate aka wealth taxes.
Inheritance and wealth taxes normally hurt the middle class. They rarely affect the wealthy. It’s always a better solution eliminate all wealth and inheritance taxes - for everybody.
Comment by Anonymous — Fri, Dec 7th, 2007 @ 9:06 pm