Estonia's lack of corporate income tax on retained earnings is being eyed by a minister in the Finnish government as a possible model for economic growth.
Minister of Economic Affairs Jyri Häkämies of the conservative Kokoomus told Turku-based daily Turun Sanomat that he plans to introduce the proposal to the cabinet for discussion, saying it would encourage companies to invest rather than withdraw profits.
Dividends would be taxed at the corporate rate of 24.5 percent while reinvested profits would be subject to a rate of zero.
"I like the idea of encouraging investment instead of profit distraction," Häkämies said. "I wonder whether the Estonia model could be applied in particular to growth companies. This model could be the future."
In Finland, the idea has been associated with Kari Stadigh, CEO of Sampo Insurance, who has also gone a step further in calling for cuts on taxes on some dividends as well.
Critics of the Estonian model have said that although it undoubtedly eases tax returns and promotes re-investment, it could make economic restructuring harder, if companies were reluctant to take out funds from existing companies to start new companies. Some also allege a problem of profits being repatriated in various ways without the corporate income tax being paid.