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No replacement yet for proposed deposit tax

Stenbock House, the seat of the Estonian government.
Stenbock House, the seat of the Estonian government. Source: (Siim Lõvi /ERR)

By taxing loans of Estonian businesses to parents and subsidiaries abroad that aren't paid back within a set period of time, the government planned to reduce the amount of money taken out of the country untaxed. The plan was opposed by businesses and lately also IRL's new chairman, Helir-Valdor Seeder. Now the government seems to have given up on the idea.

Prime Minister Jüri Ratas (Center) said on Thursday last week that the government would propose taxing group-internal loans not paid back within five years. The originally proposed deposit tax for a time period of two years was off the table.

But according to a source of ERR in the Chamber of Commerce and Industry, this latest plan has been put aside as well, and there is no specific solution at present. The Ministry of Finance's press office confirmed that the prime minister's statement had been a comment on the current status of ongoing negotiations, rather than on an agreement reached by the coalition. There was no new proposal yet.

The initial idea was to tax corporate loans from businesses registered in Estonia to companies abroad at 20 percent if the loans are not paid back within a set period of time. The current legal situation allows companies to grant loans to businesses abroad, which in turn can then default on these loans or simply delay paying them back, thereby moving money out of the country untaxed. The deposit tax would have closed this loophole.

The measure was met with criticism, with business associations arguing that such a move would damage Estonia's business environment, and in effect the country's economic competitiveness.

The deposit tax was expected to get €18 million in tax revenue in 2020 and 2021. After the chairman of the Pro Patria and Res Publica Union (IRL), Helir-Valdor Seeder, announced that his party wouldn't support the government's tax package despite being in government, the coalition began looking for other ways to compensate for the according lack in tax revenue.

On Thursday last week Ratas described a plan to representatives of business associations to tax group-internal loans if they are not paid back within five years. The measure was expected to bring in €34 million, slightly less than the deposit tax.

Editor: Dario Cavegn

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