The personnel fund system, created 35 years ago to encourage long-term investment among employees, has been exploited for large-scale tax avoidance, according to HS financial editor Anni Lassila. The taxman introduced new guidelines on March 26 that have caused confusion in the industry by potentially changing the decades-old taxation practice of personnel fund shares.
The system allows companies to pay employees a portion of profits that are transferred to a fund managed by the employees themselves, typically investing in the company’s stock. The tax incentive allowed for tax-free investment of these funds, with taxes only paid upon withdrawal. However, some companies began exploiting the system for tax avoidance by funneling a large part of their income into personnel funds.
The new instructions from the taxman have sparked debate within the industry, with confusion arising from the interpretation of the guidelines. Some old funds assume that the entire performance bonus is funded, while others allow employees to decide whether or not to fund it. The example number three from the taxman has caused confusion regarding when taxes should be paid on funded rewards, leading to misunderstandings among experts.
Concerns about abuse of the system have led experts and regulators to propose solutions such as enacting a reasonable maximum amount that can be invested in the fund annually, regardless of company reward systems. This would address tax avoidance issues and restore the original purpose of promoting long-term investment among ordinary employees.
The exploitation of this system threatens its existence and undermines its intended purpose. It is crucial to address these issues to protect its integrity and prevent further abuse.
In conclusion, HS financial editor Anni Lassila believes that exploiting personnel funds for large-scale tax avoidance is short-sighted and foolish. The proposed solutions aim at restoring the original purpose of promoting long-term investment among ordinary employees while addressing abuse concerns related to high-income earners’ loopholes exploitation.
