The Finnish Government has on 19 December issued a Government Proposal for a new tax credit aimed at large industrial investments, implementing the state aid proposed by the European Commission (2023/C 101/03).
The Act is intended to enter into force as soon as the proposed state aid has been approved and confirmed by the European Commission. The Investment Credit is expected to be available for application shortly after the Government Proposal is adopted.
Compared to the draft Government Proposal published in October of this year, the Government Proposal is more lenient in some aspects and addresses some of the concerns raised during the public consultation. The Government Proposal includes many updates to the draft. Some of the main changes are as follows:
- The provisions on the impact of changes in ownership and company reorganisations on the deduction of the Investment Credit have been removed altogether; and
- An illustrative list of eligible investment costs has been included, such as costs for the purchase and installation of machinery and equipment, costs for buildings, technical and supervision works, land acquisition directly related to the investment, costs of clearing and earthworks, preparation and design costs for the investment project, and training costs for operating staff for commissioning and start-up.
The proposed key features of the Investment Credit rules remain unchanged (see our previous alert on the draft government proposal).
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From a tax perspective, it is worth noting that the Investment Credit allows investors to offset the credit against taxable profit generated by other activities, including profit of other group companies through group contributions.
The Government Proposal no longer includes provisions regarding the impact of changes in ownership or business reorganisations on the deduction of the Investment Credit. As a result, it should be possible to more freely transfer and reorganise the ownership of a company that has been granted Investment Credit than previously anticipated.
The interaction between the Investment Credit and Pillar II rules needs to be carefully considered. Taxpayers have the obligation to demand a specific euro amount of credit to be applied, which can provide an opportunity to mitigate negative effects of the minimum tax regulation.
Parliament is expected to decide on the Government Proposal by early next year. However, as regards the adoption of the Government Proposal, discussions with the Commission on compatibility with the state aid rules are still ongoing. The Commission may require further amendments to the Investment Credit Act and the conditions for granting the aid.
The practicalities of the application procedure remain to be confirmed, but the Government Proposal states that the proposed law would be applied to applications prepared on or after 19 December 2024. To ensure a grant decision is made before the end of 2025, we recommend that the companies assess whether their planned investments may qualify for the credit as soon as possible.
If your company is considering the possibility of using the Investment Credit, we would be happy to discuss the matter further and provide assistance.
