If the Finnish food group HKScan took €96 million out of Estonia as a loan upon the merger of its Estonian subsidiaries, as described in the Wednesday edition of Eesti Ekspress, signs of tax fraud may be present in said actions, Estonia's Ministry of Finance finds.
Weekly Eesti Ekspress reported in its Wednesday edition that when HKScan merged its Estonian subsidiaries Tallegg and Rakvere Lihakombinaat in 2014, it did so using an unusual path. Namely, HKScan lent Tallegg €96 million so the latter could buy Rakvere Lihakombinaat from HKScan. Following this purchase, HKScan merged the two companies, but the debt obligation to the parent company remained. This has allowed the company to execute tax-free payments from Estonia to Finland as repayment of the loan.
"The short answer is that, not knowing the circumstances of the HKScan case and not wishing to comment on them, the aforementioned and a few similar arrangements are generally known as 'debt pushdown' schemes, which clearly belong to the domain of aggressive tax planning," Ministry of Finance Deputy Secretary General for Tax and Customs Policy Dmitri Jegorov told BNS.
"A scheme like this generally has no other point than to cheat the state with taxes, and therefore it runs counter to the requirement for conformity between a transaction's legal form and economic substance set forth in the Taxation Act," he explained.
"Talk about the need for restructuring, with which such endeavors that are risky both in terms of tax and reputation consequences are seasoned, are a juridical veil quite poorly capable of concealing apparent tax fraud. Hopefully the tax administrator will expose such schemes and hopefully also the courts will see them through should these cases reach court," Jegorov said.
"Having communicated on this subject with many tax consultancies, I know that they, too, classify such schemes clearly as aggressive tax planning and explicity warn their clients against applying such schemes," Jegorov said.
The Estonian Tax and Customs Board (MTA) has also previously adopted the position that when one subsidiary of a foreign company buys another subsidary of the parent company with money borrowed from the latter, a tax obligation may arise in the so-called repayment of the loan.
In the second quarter of 2014, the MTA refused to issue a binding preliminary decision when it comes to the post-merger fulfilment of pre-merger debt obligations. The MTA told an entrepreneur who wished to use such scheme that, according to the MTA, debt obligations to the parent may become obligations not related to business. Meeting an obligation like this in turn would bring with it a tax obligation.
Editor: Aili Vahtla