Instead of implementing the initially planned deposit income tax, Estonia is planning on imposing a tax on loans inside a group which have not been paid back in five years, Prime Minister Jüri Ratas (Center) said.
"We are currently working toward all loans granted to parent companies and subsidiaries being declared, a general regulation against misuse being enforced and a manual for its implementation being drawn up," Ratas said in a letter to the Chamber of Commerce and Industry. "If a loan is not paid back in five years, it would be treated as a distribution of profits and an income tax would be imposed."
Although the government abandoned imposing a deposit income tax, present laws are not sufficient, noted the prime minister.
"According to the concept of income tax, profit should be taxed where it is generated," Ratas said. "If a parent company takes away profit earned in a subsidiary as a loan and invests it elsewhere, postponing the liability to pay tax on profit has not served Estonia's interests."
The government previously planned on introducing a deposit tax on certain intercompany loans as well as financing transactions made via corporate accounts if their purpose was to lend profits earned in Estonia to other companies within the group.
This idea drew sharp criticism from different business organizations which said that this plan would seriously damage Estonia's business environment. Last week, the government decided to abandon the plan.
Editor: Aili Vahtla