All right, welcome to the Neuvottelija channel.
Welcome, Janne Juusela, one of Finland's toughest tax lawyers, actually a
doctor of law. And I remember back in 2014, when we wrote the Libera book How Finland
Can Be Saved, it had this concept called the Juusela model. So you're
kind of a legend in these tax matters. Welcome.
Thanks for the invite. Yeah, and actually that Juusela model, people don't talk about it that much,
but I remember there were these kinds of, uh, insights, that
for example, like, inflation shouldn't be taxed, I mean, uh, generally at all,
you shouldn't tax, like, cash, and not like dreams or the tax authority's greed, and
these kinds of principles I would respect and hope that the tax authority and
the politicians too would bring to the table. Yeah, I do need to clarify one thing, that it
was actually for the elinkeinoelämän valtuuskunta (EVA), when I did this in 2014, this
thing, where this Juusela model was, but I've also done a lot with Libera,
various studies and other things, so
yeah, this was, because it was at the same time — I was writing, well, a book for Libera, so
we borrowed that content fresh and then modified it a bit,
because it wasn't quite perfect after all.
Yeah, but, uh, let's start now with this right-wing government's
structural changes, especially the decisions related to taxation, and
I'm actually quite glad, there's sort of, like, investment banking background here,
his client base has nevertheless been tried to be understood here like this
over these three years and, hasn't, hasn't, uh, these have here mainly been
good, what's come out of it? Well yeah, if you think about this tax policy here, here
then yes, a lot, a lot of, uh, good things have been done, and quite significant
things. Probably the most important, the most important thing is that, uh, earned income taxation
could be eased, and especially that progressivity, which has been
the biggest, biggest problem in that earned income taxation. That is, that extra work
is taxed very harshly. In Finland, internationally, it hasn't been — if you look at
the taxation of low earners or middle earners, then our taxation hasn't
been all that, that harsh after all. But then already at middle income levels or
even below middle income levels, then that, that taxing of extra work, that is that
progressivity has been internationally sky-high. And now, now the Orpo government
made a really significant, significant, uh, decision and lowered the highest
marginal tax rates now to 52%, which is, which is definitely, like,
a hat-worthy achievement. That's right. So, worthy [laughter]
also hat-worthy. So, uh, that, from 59 to like 52, that was like a significant
move. Of course you should aim to get below 50, but this was like, for once,
they dared to do it, and, and that's good. Then on the capital side
a lot of good things have been done. I mean, like I said at the start, you shouldn't estimate
tax — you shouldn't, uh, tax in advance, and you shouldn't like that
by taxing things that you actually want more of, than, say,
capital or wealth or, or work, and this isn't, like,
understood. So let's take one example now, that this, uh, quite like
the stamp duty, uh, on that share transaction,
before this right-wing government, was taxed like a bit in advance, the whole
purchase sum was taxed, especially in advance, with that fairly small 1.5% tax, but
still a bit, assuming that, yes, these, say, additional purchase prices from here
will come, so let's just take it upfront to be safe. Mm. Let's go through that, so
how did this change, so that
it has, has, has been changed now so that, that only once, uh, finally
the amount of the additional purchase price is confirmed, only at that point then
is the additional purchase price taxed. Up to, up to now it's been a bit
like a gray area, and the taxpayer has been required to provide various
reports and other things, and quite often it's actually been taxed already before there was
full certainty whether that additional purchase price would materialize. This is, this is a
welcome reform, as such it sounds like a fairly small technical reform,
but it creates clarity and predictability, and specifically, like you said, so, so
it follows that principle, that taxation only happens at the point when it flows into the cash
and is realized. Yeah. So
so it's the ability-to-pay principle. That's right. Now, for example, if there's
been agreed that there's a company sale, that comes to, say, 10 million
as the base purchase price in cash at closing, and then there can be,
say, a variation, that five times next year's, uh, EBITDA,
the portion exceeding a certain level, so that can be like a range, so
then previously you've had to kind of estimate whether it's [laughter]
now, then, what will materialize from that, and take that
view in advance and pay tax on it as well. Now it's such that
if from that range, say, 5 million comes out, then on those five
million, that, uh, tax is paid. And not on the random stuff, if nothing
comes at all, then you don't pay any tax at all, so this is, in my opinion, a really
sensible principle, and it also encourages a bit, uh,
creating also that kind of structure, where both parties' interests are taken into account
even though I'm not really a fan of it as such, but it's often, like,
a good way to share that future
uncertainty's risk. Yes, yes, yes, it is nevertheless
a really common mechanism and understandable. It really does help, like,
getting deals done. So, so, uh, there's this kind of mechanism,
with which you can then make sure that that
business is in that, that kind of condition, and, and also that
future turns out to be the kind that was envisioned back at the time of the deal
at the time of the deal. Yeah, that's right, and let's continue with this theme, namely
share acquisition. This now is legal jargon,
sometimes it goes a little wrong anyway, so always correct me if it does, uh, since you
you know the exact terms, and I as an investment banker always tend a bit
to just wing it in that direction sometimes. This is, by the way, a common division of labor generally
in company sales, that I get forgiven if I use the wrong legal
term, but you get forgiven less. So, so, uh, share acqui- — that is the other
way then, uh, to get into the same boat, that if you have, say,
a current owner, who sells the firm to another, and then, say, they want to
combine them, or they just want, otherwise, this current owner's
group to continue, then in this old model, wasn't it the case that you had to
actually break off this share acquisition, take the money, pay
as much as 34% to the tax authority, this capital gains tax, then, uh, on the original
acquisition price or other, uh, computed price's difference, and then with that
like drastically shrunken net, uh, money, buy then those new
shares — so this was again sensibly reformed here.
Mm. Mm. So do you mean this share exchange?
Share exchange. Yeah, yeah.
Well yeah. It, it was reformed exactly so that, that for example
the cash consideration limit was then raised, but even so there still is, is, that
it was raised to 50%, but it's calculated from the share's nominal value. So it
doesn't necessarily always, always bring, still, still, uh,
relief to these, these situations, but, uh, the share exchange provision
was also changed at the same time, same time, so that, that it was made possible,
that a party to a share exchange can also be non-EU
companies or individuals. So, so, so in that way, the share exchange's
application was expanded, although then, the same, the engine here in
this reform was this, this massimuija massimuija, uh, provision, with which it was inten-
-ded, or the intention was to prevent that, that, that a limited company's, like,
net assets could be inflated by doing a share exchange
with an operating business company. So, so, that, that
the operating business company is transferred there, there under the new
holding company, in which case if the operating company's fair value can be
shown to be clearly higher than the taxable value, then, then
into that new holding company you could get, get the highest net assets, and through
that you could then distribute, distribute tax-free dividends. So this was, this
this, this, uh, this massi- massim- [cut off]
massimuija idea. But in that connection, indeed, the share exchange rules were also otherwise changed
ah, I thought that, that these were, or there could also be other motivations. I
just remember, uh, once I did — I was on the Metso team at SCB, we were
uh, [scoff] we made, uh, a share exchange offer for that Tamfelt,
so then we had to calculate like crazy, whether that 10%, uh, would be enough for those
cents, that you then need, like, for those divisions, and this kind of, like, total
nonsense, so okay, so if now this, uh, it's still book-value, uh, that 50
percent, not 10 percent, but then at least, like,
these kinds of, like, completely ridiculous, uh
Yeah, yeah. or micro-calculations, like, disappear. That's true.
Yeah. I mean, yes, in many worlds there might be, uh,
there might then be, uh, that it's accepted, like, quite, quite outright
just, like, entirely, like, a share exchange as such, one hundred percent
a rollover, for as long as until cash comes in.
Yeah, and this, in my opinion, uh, would be, that, that would be
the sensible principle, that then, like, you do those deals against money, and not, like,
settle this, like, sort of, greed. I — in my opinion this is sort of also a general
I mean, kind of like a media and left-wing delusion, that people
might have, like, quite, quite, uh, with a straight face, these kinds of claims,
that, uh, there is, is, like, this kind of unrealized income, that now should
every year, always, like, somehow get, like, cashed in. And there is, like,
some sense to it, that then some, some, like, endless jackpot might remain, like,
completely unclaimed, and then, uh, the person in question just walks off, say,
elsewhere, and then, uh, you're left outside Finland's borders. So even, I mean,
in that silly exit-tax thinking there's like some grain of sense, but usually this
is based just on, like, trying to, like, milk it in advance, that
uh, the golden eggs, uh, my — or I don't know if you can milk those geese. Yeah
[laughter] yeah, in my opinion an important feature of a good tax system is,
that, that only realized appreciation in value is taxed, and it follows, like,
the ability-to-pay principle. So, so only once it's realized
as cash money, then it should be taxed, like, as a main rule, that it's
in my opinion a sound principle as the main rule in taxation.
Yeah. Yeah. But then that massimuija provision, I mean, as such, uh, the background to it is
that [clears throat] a bad-faith interpretation isn't, like, any
particular operational reason to, like, increase that share substance's, uh,
mathematically calculated value, so that this, this, like,
is then used as the basis for a low dividend payment. So isn't it like that,
8% of that substance, which, uh, leads at most to that substance which is
150,000, like, in dividends, so is it now then something like 1.6 million and change, so
uh, you've then been able to pay it at the 7.5% dividend tax rate, then the idea has been
been a bit like that, well even though the company's, like, real value doesn't
like, require it, so this kind of calculation is made, that this, this
substance is brought up to that 1.6 million and change. Dividends can be paid,
so this is now what's being tried to be solved here, and as a side effect then
all kinds of other, other ripples come then, legal order —
as such, in that, these social media influencers have acted, as such, quite in line with the
system in force, and those, the operating company's
shares have as such been valued correctly, and the tax authority too has often accepted that.
It's a matter of the system having structural flaws, and now, now this one
symptom is what they wanted to address, that the clearest thing would be that
uh, the dividend tax system would be reformed to be simpler and
more neutral, and then there would never have been any need to do
anything like trying with share exchanges to get, get net assets
increased. Yeah. This actually goes back, uh, at one time
uh, I once went to [unclear] business school, and there was
this kind of, uh, homecoming day, and, uh, professor emeritus Niskakangas was
there, so I went right, like, to see him, like, in person, just so that I
could get to tease him about this, uh, avoir fiscal change, that this now
goes back into ancient history, but back in the day we did have this kind of
really good and easygoing system called avoir fiscal, in which, uh, this
personal and corporate taxation were combined into this kind of seamless
pipeline, which then maximized the incentives both for the company to make a profit,
and for the shareholder to bring this taxable capital income to the state's
coffers and into their own pocket, and then this was broken, and for mysterious
reasons, and then, uh, this kind of artificial split was made, which I don't know
if it exists much elsewhere in the world, that there's like listed and
unlisted companies, so this is, in my opinion, like, quite a
really strange structure, that, like, haunts us in the background. And but not
worth breaking it in a way that, like, it gets crapped up like,
toward maximum benefit. The model that I've actually proposed
already back in 2014, or even before that in some contexts, is specifically this,
that you'd simulate the same end result as
avoir fiscal, but much more simply. So the end result would be
that, that the total tax rate on distributed profit is
always the same as the capital income tax rate. Mm, 30%
m and, and, uh, and then also, also all
companies would be treated the same way, there'd be no difference between a listed and unlisted
company. And this, well, this discussion has been just about that, quite
many, I mean, really widely support a neutral and simple
model as such, but then the differences there — my view is that it should be neutral
and simple, but it also has to be competitive and encourage growth,
that kind of model. So I'm talking about that
total tax rate of 30. In many circles, though, they talk about it, that it
should be at the level where the total tax rate on listed dividends is currently above,
clearly above 40. So, so this is the, the reason why
somehow reform projects have apparently, like, stalled. This kind of, I mean,
neutral, simple dividend tax model, well,
recently, for example, many business organizations have supported it,
but, but then, the political debate apparently concerns,
clearly concerns that, that, like, the level — what, what, what that total tax rate
should then be. Yeah. And then
[sigh] [deep breath] this kind of, uh, some European Tax Foundation, uh,
according to a comparison, this 34% top tax rate on capital is, uh, Europe's — and probably
also the world's third highest, so in a way there's this kind of, like,
left-wing delusion, that because we've gotten used to those 59 and 52 now, marginal
tax rates, on the labor side somehow nobody, like, looks at all at how these other
countries in the world tax this capital, and, well, we do have
a really tight tax base — in many countries there are nominal, like, tax rates, but then
a lot of exceptions and tax exemptions, for example after certain holding periods. So
and compared to wage income [deep breath]
with wage income there isn't that kind of inflation effect, the way, the way
the same way as with capital income, especially, like, capital gains, that
if you've owned, owned, uh, held for several years, and
under these kinds of normal conditions, when we also have inflation in the economy, then
then indeed that kind of taxation really tightens up very, very harshly
at some 34% nominal tax rate. Yeah, that's right, you can understand that
wages are always paid for that current month's work, and, and, like, but then
like, the main portion might have inflation adjustments made to wages. That's
how it is, and, but I mean then with investing there might be, say, a 30-
year delay, in which case then that money from 30 years ago is, like, uh,
if it's taxed like entirely on that increase in between, which is purely
inflation, then it, well, it could, say, in real terms be
zero profit or even a loss, but still, still, still, uh, then the nominal
profit can be, be significantly large. Yeah. Then, uh,
in Europe's more successful capital market, that is Sweden, there's then
also been made a long time ago, uh, in 2004, this kind of reform, that
inheritance and gift taxes are, uh, subject to capital income tax, and not, not, uh
this kind of separate inheritance-gift tax's, uh, wealth-tax valuation. So those receipts
can be left uninterrupted, uh, so that, and because of that people's, like, holding periods
are, like, considerably longer, and longer than in Finland. And
then somewhat older gentlemen and ladies have, like, an incentive still to
invest, because it's not, like, so obvious that that holding gets cut off
like, at the heir's neck by cash-payable inheritance taxes. Yeah.
Right, right, this, this is, in my opinion, the same phenomenon, that we maybe haven't
understood. This debate that we're having around here is really naive
around it. Yeah, yeah. Yes, it was, like, my
opinion, like, this government's biggest minus was that, in tax policy, that
that, that inheritance and gift taxation, then, wasn't
dared to be abolished. There's still so much evidence from our neighboring country,
Sweden, that, uh, that it back then had practically only
positive effects, also on total tax revenue. Of course,
after a small, small, uh, initial dip, but — and how much it has
has, has, like, strengthened that, like, ownership, and increased Sweden's
competitiveness, and for its part also increased this kind of, like,
[scoff] blue-and-yellow
capitalism — these knock-on effects are, like, significant. At that event was
the Chamber of Commerce's CEO Juho Romakkanen, mind — this was being deliberated, so
I then, uh, improvised on the fly this kind of thing, that now Riikka Purra and
her associates surely won't bother to reopen this, the inheritance tax, that there's that
7.5-thousand, like, tax-free portion, and then there's that 30-thousand, uh,
inheritance tax's, like, tax-free portion for this gift tax and inheritance tax, but I
say that now you could, uh, get some jingling money into the state's coffers, by doing
like, on the portion exceeding these, like, uh, to that gift tax, that
with a stamp duty you could then, uh, top it up, say, for relatives then, uh,
for direct heirs then, uh, say with that half-percent, that gift tax,
and from that you'd immediately get more tax into the state's coffers, that
[scoff] right, right, this could still be done within this government's term. It wouldn't be
such a huge deal, since, if somehow it feels like the inheritance tax is
now like a taboo during this government term, then
this kind of small technical tax change could then [clears throat]
bring, um, that, in a way, also that, like, circulation of capital. Because then it remains
like, from individual people it could there, for others then, already
a bit in advance, so that you don't have to then, there, on the other side, the other side of the grave
make all those capital transfers, which then might — the dying person's, uh,
risk profile, like, changes, and their cognition worsens, so maybe not even
AI could help there. So this, this, this would be, like, useful. But this kind of
amazing proposal. I don't know if there's political hope for it now, but if Riikka
Purra, if you're listening here, then that half-percent, uh, gift tax top-up
tax, still bring it into use here. Yeah, on that topic still, inheritance and gift taxation, so
it's been quite a strange feature [scoff] in this Finnish debate,
that, that it's gained a significant position, like, as an argument, that if inheritance and
gift taxation is abolished, then in some situations this, this heir's
uh, taxation might actually increase. I mean, if, if you then sell quickly after that,
that this, of course, always when you make changes to the tax system, then
of course these kinds of situations can come up, but, but the essential thing is, that it
is — it's in the heir's [scoff] like own hands. Because of taxes, you don't need to,
because of the inheritance tax, no one has to sell, because it wouldn't exist anymore. And
then if you do sell, then you get cash in hand, with which you can then pay that
capital gains tax, so yeah, that's right. And then we could also
push for a transition period for these, these current, uh, exceptions, say that 30 thousand,
if that then bothers people. But I mean, that was like, even that, uh, Wat's
paper was like just outrageously bad, because it didn't deal with
like [scoff] business ownership at all. It focused on something like
real estate, and, uh, and then, again, what I just remember from it is
uh, the then chief economist of Suomen Yrittäjät then made exactly that
calculation, that compared — assumed that at the moment of death everyone would sell with this
new system immediately, uh, at the capital income tax rate, and tax would result,
whereas you often have, like, those, uh, tax-free thresholds, so, and then
ended up then with this rather strange, like, statement, that, um, uh,
for entrepreneurs, that inheritance tax change was harmful, even though here
there are two different tax subjects. That's the deceased entrepreneur, and then their
heirs, but yeah. But this was like just
hallucination, this whole debate. I don't know how much, I mean, this kind of
like, as a doctor of law, do you see this debate as absurd, or
do you have this kind of gentle view of these people, that, that everyone is trying
to understand these things from their own point of view.
Well yeah. I mean, yes, I of course, all arguments, uh, they need to
be, as such, appreciated and evaluated, like, like, quite
with a clean slate. What I see, like, right in my work is that from Finland's
point of view this is a worrying situation, that, that, uh, so many
wealthy individuals and families are leaving Finland, and of course there are, are other
reasons too, but yes, this inheritance and gift taxation is, I would dare say, the biggest
single reason why, why people move, move away, uh, from Finland,
so, so because of that — and that's not the only reason to — inheritance
and gift taxation should be abolished, by no means. In my opinion, problems also arise quite
among ordinary people, who get, get, uh, inheritances or gifts
and, and, uh, those inheritances and gifts often aren't any cash money, but the tax
still has to be paid regardless. So, uh, there's both this kind of
like, fairness and ability-to-pay problem, and then also a competitive-
competitiveness problem. That's right. And then, once again, that
like, scrambling around with the tax, like, you can see it from the fact that the estate has to right away
draw up the estate inventory, and it has to immediately pay up to the tax authority, and then be divided. And
whereas then, say, in the Swedish model, that, like, in a way, it isn't
isn't such an acute thing, that it's — you can, like, look at it and
calmly, like, not, not panic, and then make a sensible plan,
whether to sell something, or over time, and then, uh, against that you get
cash flows when you sell, and then you pay the taxes. This is, like,
in many ways much calmer and sensible, and likewise then, uh, you don't need to
panic — that, uh, dying person, that they, like, in advance have to, like,
stress about what this now, uh, bomb — if, say, they're, like, an unlisted
company's owner, where then, uh, both the ownership and, uh, the taxes go off
then, uh, and the children have, like, no idea about it, so it can end up being
a really stressful situation, and then you'd suddenly need to get some company sale done,
and even there, then, there's, like, uh, maybe no understanding that those are long
processes. And then, in a way, for the same reason,
rich people in Finland tend to be older people, so often it would then be
this kind of wishful thinking, that some other old person buys your old person's
ownership, but what sense does that make, they know a lot less about it than you do.
M, so it should be some kind of institutional structure, or some, some
like, this kind of, uh, owner, who's able to take the reins from it and develop that
business, so then it's no wonder that people then leave
out into the world, and then structures get made where all these, like,
problems go off right in your own and your family's face. Mm. And you can now note that
then, when — if you look at generational transfers, like, in companies,
so when those relief provisions apply, then the total tax burden
is moderate. With that, surely many can live, but in very many
situations they don't apply, and then, then, uh, it's a very serious and
difficult situation, both, of course, for these companies — they have to
prepare and put, in a way, like, funds aside for a rainy day, but also, also, like,
for Finnish society, and for companies', companies', like, dynamics.
Yeah, yeah. On this, the family-business association calculated, that that stashed-away fund would already be quite
in the neighborhood of, say, 5.5 billion, and
then again, Swedish studies have shown that it has brought a lot of
long-term steadiness, and those companies grow more, and since that
reform, and take more risk, and Sweden is this kind of, like,
small-capitalist's dream right now, that there's capital to be found there, and
the stock market is really strong, and, and there's that capital turnover happening, and
circulation and risk-taking, and, by the way, we have this, this Samuli Knyfril,
uh, of Trans Corporate Finance too, put out a report on that back in [20]15, so
he has done really good research on this, specifically on unlisted, uh,
[scoff] owner-companies and their, like, capital pool, that they are, compared to others,
great research work. I don't know how much you follow this,
actually the doctor's hat, and dive into this, like, industry research, that
for example, just these Swedish studies, or studies. Yes, I do, like, follow
follow, that [clears throat], of course, like, as my main job it's, it's quite
like on the advisory side over there, but yes, I do
I also, in that sense, from old memory, have a researcher's hat on, that
yes, I do now follow, follow to some extent, some extent, also, like,
research and various discussion, in a way even academic discussion
and about tax policy. I'd suggest, that, well, later we go to the insider
side, and talk a bit more about this, that I myself, uh, was on a separate-law
like, drafting working group as a permanent expert. Back then I was
Nordic Trust's managing director, so we made this kind of separate law, uh, on bond
holders', uh, representative and security agent. Absolutely
great stuff, but that's, in a way, on my end, that legal side. And then not
these other reforms that haven't come yet, uh, but they are very
strongly in preparation, and, like, the sure one, the law, is this, uh, corporate tax
moderation to 18, that
in my opinion it's already now, like, guiding investments, growth, and risk-taking,
because when people see that, then from those future profits they'll get to keep
more. Yeah, it's definitely, it's, it's an important, important, uh,
component of corporate taxation, that is, that, uh, supports then
supports growth and making investments in Finland, and, uh,
also ownership. So, so, yes, it is, it is an important, important measure, and, and that
what's of course worrying is that, that in some circles it's
been announced that it would be, be reversed, or something along those lines, but
hopefully it won't come to that. What I of course also have to remember
is that the corporate tax rate isn't, isn't of course the only thing. It's perhaps the most important
component, of course, but not the only one in corporate taxation. So then there are
a lot, a lot of different factors, where, where
uh, Finland's, Finland's tax system should, like, be improved, and, and brought
to a more competitive level, which, which then hasn't, hasn't, uh, hasn't, hasn't
for one reason or another, like, been implemented. Just, as examples, one could mention
for example, that we have, we have this kind of, like, share disposal
tax exemption, that is, these fixed-asset shares, so
so there, like, little by little, these interpretations, and also through case law,
have tightened, tightened so significantly that, that, uh, it is, it
in a way it's no longer this kind of, like, internationally-modeled
participation exemption, which is what it was originally meant to be. Originally it
was enacted back in 2004. Mm. So, for example, this kind of
fixing it — that, that is a genuine harm to competitiveness, because, because
for example, a corporate group would rather set up some, some structure with
some intermediate companies or holding companies
invest, say, rather in Sweden than in Finland. M
so, and it causes a lot, a lot of tax risk in Finland, and interpretive uncertainty, and so
on. Then we have, for example, like, a disproportionately broad
application practice with this kind of general anti-avoidance provision,
which causes a considerable amount of uncertainty
in many situations, and, and also then, also then various disputes, which
weaken, like, Finland's system's predictability and, and reliability
significantly. Yeah. On that, EVA's Emiliina Kujanpää, who
has also been here, wrote, in my opinion, exactly about these problems, like,
a commendable report, that that [scoff] tax risk is also, I mean,
that you don't know, uh, which system it'll go by, if that fixed
asset shares' treatment is, like, totally absurd, that if you have, like,
there it's really extreme, that either there's no taxation at all, or then it's like
uh, the full pot, and then on top there's, like, still the costs of you going to litigate
your own case, and yeah
possibly, uh, advance tax ruling interpretations, they don't really want to give,
because that interpretation has been driven narrower and narrower, so that
everything goes off right in your face, and the normal international model is,
that, that if you own at least, like, 10%, and have owned it for one year,
then all — the limited company's, uh, of the other
company's shares that you own — the disposals of those shares are
tax-free. Yeah. But then in Finland, they require
like, on top of these, these, these clear criteria,
[clears throat] various kinds of, like, a business connection, which is
a very, very kind of, like, interpretive concept, or then some other link
[clears throat] to the transferring company's business activity, which is
also completely murky, in the shadows, as to what with that
then, and at worst, you end up building some strange
like administrative contraptions then in both companies, you fill it out, and then
it turned out there was no benefit at all, you just got costs. And then those taxes came
anyway, right in your face — it's like totally ridiculous nonsense, yeah. And then again, on the other hand,
we then do quite readily accept that, say, dividends are, uh, between companies
tax-free, so then, what difference is there now, that this
is, like, somehow just — yeah, yeah, there's a computed thing here. Someone has just
decided now, uh, this isn't at all [scoff] nice, that
these — you're not taxed on this in between, in advance. M
yeah. Uh. Well then, uh, one or a couple more of these kinds of, uh, bubbling-under, uh,
uh, probably, like, uh, still somewhat open matters is this
world's best, uh, stock-option taxation, that is — Riikka Purra did say now let's get this
sorted out, so as background, back in the day my first boss
that, uh, Petteri Fagernees, back in the day, distinguished himself on Fortum's board
as chairman, together with Mikka Lilius, and then, uh, before that there had been quite
a lot of, like, Nokia millionaires made through options, and back then there was this kind of
lovely system, that, uh, those options were, quite rightly, taxed according to this, this
international principle, as capital income tax, and, and only then
when they turn into money, that is, you sell, uh, sell the shares. But then
over time, this too got perverted in a way, that they take, take them just to be safe
at that moment, and also take earned-income tax on top. So isn't there now, in this outlook,
like, a bit of light at the end of the tunnel, that, yeah, that up until now, or for a long
time, at least the last 15 years, has, m
the taxation of options been such, that when, if you sell the option, then, then
then, then it's taxed, and it's taxed as earned income, but, and also in that
case, that when you subscribe for the share, that subscription moment triggers the taxation, that is
when you subscribe for a share with the option, and if you got the option, say,
for free, then the share's fair value is, in practice, taxable
earned income. Which, as we know, our highest marginal tax rates
still are, and have been, like, world-class, and often
this kind of extra income goes right into those highest marginal tax rates,
so that's an extremely harsh taxation before there's, uh, any cash, cash
actually come, come into your hand. Now, now the intention is to reform it, so that, that still
still, when, uh, a person subscribes for shares
based on the option, the taxation isn't realized, but taxation is only realized then,
when the shares are sold. Yeah. And
probably the principle would then be, that, that up until that point,
in a way that increase in the share's value, up until, until
uh, the share has been subscribed, then it goes, would go, like, into earned-income taxation's
scope, and then after that, once the shares
are owned, then the increase in value after that would then be under capital income taxation's
scope. Yeah. As such, what's important is that now
it isn't, like, cashed in with money in advance, but also that, uh, that profit isn't
any longer, like, earned by work in any way, once it's, like, been turned
into a share, so of course it has to be capital income, that
so, once again [scoff], here there's this, like, when
Finns have this kind of delusion, that it's totally okay to compare over 50%, uh, that
this and that, and then, like, the effect is that then there haven't come
option millionaires, but there haven't been tax revenues either, so, or once again
I mean, uh, you get what you don't tax, and what you tax, well, you get
less of. So it's nothing more complicated than that, in a way they came up with, like,
the perfect way to, like, kill the whole taxation — the tax revenue from options, from options
altogether. Plus then, uh, nice for you if you're, like, some inventor or founder, and
then the Yanks take the option money, and you don't even dare use the options,
because, uh, you'd have to tear that money from somewhere, so you're
you're, uh, a poor person, so where would you get those tax funds from.
Exactly. In general, there should always be some reasonableness here, that if
money is demanded to be pulled into the coffers, there should be some kind of test, that
can this, like, tax subject, like, in any way, like, cope with this, and
then, by the way, all sorts of things have been built around this, like, well okay, pay
later, take this kind of, like, some crazy interest rate, which runs from this
point on, that this is somehow, like, just really, really
like greedy, this tax-bear's, uh, thinking, like you said, so often it's not
understood that, that people, on the other hand, in Finland are really, like, law-abiding
in that way, that they, like, try to pay these, unless it's, like, totally
unreasonable, or assessment-based taxation, that situation. I
would have kind of the same, by the way, as a side note about these ancillary costs, that
uh, this YIL, which the Marin government, uh, back then, uh, during that government's term
brought in, was unreasonable, because then there were those strong, uh, features
of assessment-based taxation in it. That, uh, in practice, at the tax authority's level, an operating pension
company complex got, like, assessment-taxed with a single payment, so there's really no
sense in that, if someone, someone, uh, outside
says what you should have earned, and then takes 25% of that, then always
these kinds of, uh, assessment- and advance rulings, without liquidity or real, uh,
value creation beforehand, are really, really stupid, in my opinion.
Yeah. And one, uh, actually, kind of a segue from that, that Finn-
-ish tax system also has, like, serious problems, like,
in terms of legal protection, m
and on that, indeed, there's now a really fresh EVA report — this Kunnas'
head, yeah, so, so, uh, for example we have it so that, that
in principle it's in the law that in an un-, unclear situation, like, like, [U]
the decision should then be made in favor of the taxpayer
accordingly, but in practice this has remained a dead letter, and
I would dare say that the prevailing practice is that unclear situations
go against the taxpayer. That it is, or it's at least, like, unfortunately
common. Mhm. That, so, so for example
[clears throat] like in tax audits, or when making
tax decisions and so on. After that, then when, like, these
come, of course, then if you feel that a tax decision is off, then you could
then file an appeal request with the Adjustment Board, which isn't
however, like, an independent, independent court, but rather
a unit within the Tax Administration, where then, then, uh, there isn't, isn't
in a way, like, the procedural mechanisms of a court proceeding, there's no oral
hearing or anything, and, and, uh, and the processing times are incredibly long.
Mm. From one to two years, or even longer times have been seen. So, so, so these are, and
then we have, like, and since there are really a lot of, like, these open-to-interpretation
tax provisions, and since the Tax Administration easily makes, like, like, the tax recipient's
favorable decisions, then the importance of advance rulings of course
like grows significantly. But even in those there's then, like, in this EVA
report as well, quite a lot, a lot of different problems were noted, and then
indeed there's also that problem, that VOVA, that is, the Tax Recipients' Legal Services Unit, can
appeal then if the taxpayer gets a positive ruling. So, so this
can then completely pull the rug out from under, like, that
advance ruling, just because of that too, that, that if it then goes
to the administrative court, then that, that might take another year or two after.
Yeah. And there are, uh, big changes here. I had, uh, Tarja Visto
as a guest on this, uh, she dared to go through this, uh, Ahlström Munksjö, uh,
redemption case, and, in a way, [scoff], then it also came out,
that there was this kind of, uh, at a negative price, uh, uh, forced
golf-share sale, so sometimes there are, like, really interesting outcomes in these, and
then, in a way, when the level of court rolls on, like, up to the higher
court, then you go with those decisions, and sometimes
quite interesting, interesting final results come out of it, and, uh,
I'm not competent [scoff]
to evaluate those, but it's fun, fun to speculate then. I had, for example,
just as a side note, my first thought was, for example, here in this Ahlström Munksjö
uh, uh, in the redemption price, that I have
like a strong principle, one share, one price, so in a way of course it now
gets redeemed at the same price at which the main deal was made. To me it's, like, somehow
natural, but then [scoff] when I got into that
case, there were then reasons this way and that, that it could have gone the other
way, and different courts overturned each other's decisions, and likewise this too is also
like quite absurd, that there can be this kind of situation, since usually
a limited liability company means that you shouldn't ever have to do
a share sale, that you can always just, like,
leave that certificate, uh, unused as worthless, but then there was just
this kind of, like, golf share, where, uh, then, uh,
the minority shareholders were forced, uh, like, uh, to pay for the fact that they
were redeemed. So yeah
yeah. But I mean, uh, [clears throat]
as such, law too is a science and an art made by people, that
everything can be agreed upon, and that then these kinds of, like,
preconceptions then don't always, always hold.
[clears throat] Mm.
And in that sense it's good that this tax interpretation is being done, and from that
a bit of this kind of case-law practice emerges. Maybe as a philosopher, I'd want to
ask, since we don't have that American, uh, tradition
where precedents create, uh, that body of law, but instead we have, like,
this kind of — how do you put it nicely, uh, legal [scoff]
system, where the state's power and, uh, written laws, so, so
not, not — it's not that, in a way, court cases create it — so is there, uh,
is there, like, some conflict here with, then, world trade, or other countries
with? Well yeah, we, we do, I mean, the principle
like, in the European, European way, is exactly that the legislator, like,
enacts the law in force, and the laws, but, but we too have, like, like,
the highest, highest courts', and the Supreme Administrative Court's
decisions do have, like, like, uh, an effect that, like, shapes the law,
so, so, then if the KHO, say, sets a line
on some principle in some matter, then, then, like, as a starting point,
authorities and other courts, the lower courts, should follow
it, if it's this kind of, like, published precedent.
So, so in that sense we too are, we too aren't purely, like, like,
like, solely dependent on the legislator, but in Finland the problem has been
that, that these interpretations are already made, like, at the authority level,
in the lower courts, and also, for example, in the Supreme
Administrative Court, in my opinion, in many
cases, changes are made to the law in force that, like, go too far.
actual changes should be made by the legislator
in Parliament. Only, like, clarifications
within a certain, like, framework set by the legislator
belong to the courts, but developing the law itself
should belong to the legislator. Yeah.
So this, here there is that, in a way, that certain, certain kind of, like,
tension. Yeah. But the good side is that now
then, with just basic parliamentarism, through the right-wing government, you can
change this, like, heavily shelved, and the authorities', uh,
hijacked tax practice, just by making a new law, and then, in a way,
this stupid system gets wiped away, so in that
sense these are also good, these kinds of, like, reforms that have been
discussed here, because they, like, wipe out that, like, mindless accumulation, and, and
tradition that has gotten to form within that system, like,
self-perpetuating. [scoff] Yeah. So it's then, then a tear for those
who've been able for decades to, uh, like, hit with that provision
onto the head of this little administrative subject, but rightly for those
who vote in the elections then. Mm. [laughter]
So there, too, democracy is indeed this kind of great purifier, and
the authority then does what, uh, the democratic system commands. On that
by the way, maybe on this, I was also, uh, when Nalle, uh, wrote for Libera just
this kind of, uh, defense of a constitutional court,
so I sort of agreed with Nalle for a long time, but then, uh, Heikki
Westman came on as my guest, and then we discussed this for an hour and a half,
that, uh, Parliament's, uh, Constitutional Law Committee is actually
quite good, because in Finland these court levels are so terribly long, and
in a way that basic assumption, that you're kind of, like, guilty
uh, in that, the whole thing, when the system just drags on for, like, a decade, maybe
even longer, so that it's actually good that this too has then
in a certain way, a bit politically, but, like, pre-cleansed, that they take
the slack out of it, like, right there during the law's processing and approval,
and it's not left, uh, to someone. This is that great, great, uh, myth that
politicians, of course, especially keep alive, that we should have a constitutional
court — it wouldn't in any way remove the need for prior
constitutional review at all, and that could, say, be done by some
parliamentary Constitutional Law Committee, or by requesting an opinion
from a constitutional court. Both are necessary. We
we're completely lacking, in practice, subsequent review, and only
in subsequent review can you take a position on what situations actually
would arise. During the law-drafting stage we're a bit, like, in a theoretical
setting still, that here there's, like, this kind of thing, and, and
possible, and it's of course important, but subsequent review is still, or it's
they're together, like, those are what form, like,
constitutional review. This subsequent review, for us,
is practically entirely missing. Although maybe I would argue like this, that
if you take, uh, a really extreme kind of parliament, then it could, with a 5/6 majority,
uh, without this leaving-to-rest procedure, make quite big, like, changes.
Mm. So, so then, in a way, that, like,
with a certain qualified majority, you can, like, indeed then, like, do that
thing, which in some other country the constitutional court would have then
done. So, and that now is, I mean, yes, in any case, like, the constitution's
amendment should remain, yeah,
like, Parliament's right, under these certain criteria, that
the Constitutional Law Committee mainly oversees compliance with the constitution, if
Parliament amends the constitution, then the Constitutional Law Committee
oversees compliance with that amended constitution
so, but you're kind of like hoping for a constitutional court in Finl-
-and — definitely, because I have, from my own, own profession's perspective,
found that these kinds of, like, fundamental rights
and, and legal principles don't, don't have that kind of significance
in Finland, for example, in legal proceedings, compared to what, what in many, many
other countries. Yeah. So, uh, so because of that, we
in practice can get completely, like, even unreasonable outcomes, which
with common sense, for example in taxation, you can't understand. Because
someone, in the administrative court or the KHO, looks at some purely technical
technical, uh, provisions and ends up at — well, this could be interpreted, say, like this.
For example, that someone's personal property gets confiscated,
when alongside that there could be an effective fundamental-rights
interpretation. So, so different proportionality principles and the protection
of property, like, as a starting point. So if you don't have a clear basis
to confiscate someone's property, then you shouldn't confiscate it, based on that constitutional
property protection interpretation alone.
Yeah. So this kind of, these kinds of things are missing, and, and
because of that we get, get an annoyingly large number, to put it bluntly, just
incomprehensible, like, outcomes from rulings.
Yeah, yeah. No, I, I'm maybe open on that — I mean, earlier I've been afraid of
this, say, the American example, that if it then becomes politic-, then it
gets politicized, that then you bring in, uh,
and possibly geriatric, uh, uh, far-right or far-left
and then it's down to their, uh, whim, that, uh, that, like,
what kind of interpretation then comes out — let's take, say, an example, that, say,
in my opinion, that universal applicability [of collective agreements] is an injustice, that it, like, clearly violates
uh, freedom of contract, that what right does some, uh, like, tripartite body
[scoff] have, like, to force private contracts
into some particular form, if they aren't even parties to it — it just feels, like, really
silly, that this kind of thing has gone through. Well, now that it's, like,
somehow, by luck, gotten through this mangle, by accident or on purpose, then it
then becomes this kind of, like, uh, an outright constitutional right
under this system, so [scoff] there could then be some
lofty constitutional, uh, court, to which this then gets brought, like, for a decision, and
then they end up saying that was crap, let's take this out. That's the good outcome,
but I'm not at all sure — there could then be, say, six lefties
and two right-wingers, and they're of the opinion that under no circumstances this
wouldn't it then just codify that, like,
for all eternity, this thing, that I don't know, it's not necessarily, like, it's a good
this kind of, like, extra safeguard, and, like, you said always
then the parliament could then redraft the constitution, in which case that
mangle pulls it through. You'd have to comply with it then.
But it really is, like, in a certain way, like, about institutions,
that the more, more, like, balanced and healthier the footing on which institutions
are, the better, better the chance of getting
as many correct outcomes as possible. No institution
necessarily guarantees that individual bad ones won't come out of it. But we do have, like,
an institutional problem in that we're lacking effective fundamental-rights and
subsequent review. Mm.
It's just, like, an institutional problem. It's kind of, like,
a matter of chance, how they, how they decide to take some
fundamental right into account, say, in the administrative court.
Yeah. Unfortunately, often it's at least not
in the taxpayer's favor. That's right. Then [scoff] maybe that, uh,
international agreements. I was once, uh, an idealist in that sense, that I
thought there was this kind of, uh, strong international, uh, law and
case law, which is ancient and based on some
agreements too, but in these kind of Trump-era times, my faith has
started slipping away, so it's actually good then to have purely commercial ones, that even
the Central Chamber of Commerce even feels a bit funny, that some kind of, uh,
commercial system gets to make, say, uh, uh, on commercial
agreements, then, then, uh, binding legal decisions, which are
possibly even still secret, so that you can't even find out about them — but on the other hand
it's an efficient system. It's reliable, and people want to put in their paper
the name of the Chamber of Commerce or some equivalent, so that's their
right. And in a way this kind of, like, commercial, commercial-smelling
legal system too can be almost, like, already, in this kind of situation, better than
this kind of legal system. Mm. Or I don't know how much you see
of it, that it's written straight into the contracts. It's not necessarily wanted
that you go, like, through this three-tier legal system, since it's
expensive. Yeah. Yes, it's, like, the prevailing
practice in commercial contracts, that, that arbitration
procedure is then the dispute resolution method, since there really are many, many
problems there, I mean, like, from companies' point of view, in that kind of normal court
proceedings. I mean, public-
-ness itself can be a problem, and then processing times
for example, so, uh, that's why these, in a way, like, commercial
dispute resolution procedures really are, like, the prevailing practice. Yeah, I was that
Nordic Trust managing director in Finland, and that Norwegian, uh, business partner was, yeah, FF
said once, kind of oddly, I mean, uh, that his, uh, had been
on staff at the court, uh, that there, like, they're that commercially
specialized judging work, and when, like, in a way, when that system is run
there on the public side, and with smart people, then it works, that, that
then he, like, was a bit puzzled by this, Finland's, this system, that
in a way we have kind of all the smart people, uh, on the private side, and then
the public system is, like, somehow crumpled up, and maybe he's not thinking wrong
and it's maybe not their fault, but somehow this is a bit lame, this Finnish
system. Mm. Uh, well, I don't know, uh, I'm not, I'm not myself a
lawyer, but I've glanced at a few contracts. Let's take here now this kind of
temptation still, to finish, since you're then working at Castrén as one of Finland's
top lawyers, so, uh, has your
in a way, that work organization changed — that you still have that, Mert already, uh,
retired, [clears throat] but, uh, capital markets, company sales,
dispute resolution — has this, like, your, uh,
division of labor changed here? Well no, no, not as such — yes, yes, we do have
like a lot, a lot, like, in a way, the largest number of different practice areas or
sub-practices and teams, but, but the thing is, that on assignments, indeed
very close cooperation happens, so those, those don't form any boundaries, the ones where
teams are, but, well, in expert work, in a certain way, has
been seen more broadly too, that it is, is in a certain way good, that there are these kinds of
like, like, teams built around those certain areas of expertise, where
then also, like, that expertise gets developed, in a way, and you're able
then always, always, like, to know who the right people are
for any given assignment. But as such, as such, that, like, that work structure has
stayed as such the same, even though a lot, a lot of change has happened here, and
is happening because of AI. Of course it's not the first
technological upheaval during my career, that I
have often said, that when I started my legal career, then, then
back then, letters were sent, and books were ordered from libraries, and, and
uh, or you went to libraries, where there were legal sources, law books, and
all other legal literature, and case law, and so on. So now
already before AI, all legal sources are, like, right here all the time,
on hand. 24/7. You don't need, don't need any, any, uh,
anything else, nothing else is now, like, basically needed in order to be able to
look up legal sources and cases, and to give, based on them,
like, your own views. But AI is of course still one big
and rapidly happening leap, quite, quite then to a certain,
again new level. Yeah, I'm now, uh, Translink's head of AI, and I have
brought AI into these, uh, certain processes of Translink's, like,
automation's scope, but in that context
so then, I've been sent here a lot of, like, AI startups, which
in their own view try to challenge, uh, uh, Legora and others, but, uh, well one
was quite interesting, this kind of, like, [unclear], so I installed
it in a way, uh, that it was this kind of, uh, a multi-, like, agent, uh, [causal]
type thing for contract documents, which then, uh, so, for legal
documents then produced markup comments or other, other stuff. It
was quite interesting. I also ran it, uh, on Finlex, like, so that I
could get it run straight from there, uh, with this kind of MCP server,
like, Finnish law and the Supreme Court's decisions, so you don't have to pay
anything to some, uh, information aggregator — so yes, there really are, like,
these kinds of, uh, quite good shortcuts even for non-lawyers, but it's
still, I mean, at that stage I wouldn't, like, dare to let out any even slightly more important
document, like, without, uh, a real lawyer's, uh, eye on it, that
that there are, after all, then, uh, those assumptions, and then
you never quite know how that, say now, Finlex's and these, like, uh,
[sigh] Supreme Court's decisions, this
harmony works together, and whether — have I now really found every single
decision that affects that case, or whatever,
but it really is moving forward fast, and, and, uh, there are, are, like, here
these kinds of free sources — a lot of them have come out.
Yeah, indeed. And truly, like, from today's lawyer, in a way,
still, as before, maybe it's even emphasized more, that you also have to understand
that big picture, and those, those principles, that
are, like, behind the regulation, or somehow behind case law, so that
you can efficiently also use these, these various tools, and are able
like, are able to, like, direct their use
and then can also, like, supervise that this makes sense, and if there's something
then, then, uh, that, yes, it, it, there, like, the lawyer's
job, job description is, like, changing, so, in my opinion, all the
time more toward that, like, high-end direction. Indeed, like,
many law firms, big international law firms have
emphasized in their work, for years, this kind of, as it were, high-end advisory work,
but it, it isn't going to decrease at all — on the contrary. It's going to, still,
even more, like, become emphasized, so that you can. So there's this kind of, like, deep
deep expertise, and, and insight, which, which isn't, like, which, which isn't that kind of
like, mere surface, surface-level knowledge, and on top of that comes, comes
then all these, all these, like, efficiency and also quality
quality improvements, which many technologies in turn provide, which all
the time keep developing. Yeah, good. And, uh, Jan N Ollila said
about this, my new negotiation mandate, once kind of funnily, that, uh, Sami
you, uh, probably think here, as an investment banker, that the legal
agreement is, uh, this kind of, like, drafting of a commercial plan,
where, like, through signing you go to closing, and then some post-game
through their, like, reps and warranties. Yeah, that's exactly how I think about it, but, uh,
a lawyer also sees this, like, uh, that Lord of the Rings-ish world — hasn't he said this
— but that you see in the contract the clauses that, that you can
use when there's disagreement.
[scoff] [clears throat] Then, say, comes that
post-deal, uh, uh, disappointment, and, say, something doesn't work
at all, and you'd have to, say, cancel the whole deal, so what tools do you have
available — well, AI [scoff]
brings, like, these kinds of scary possibilities, that people, uh,
who don't really have, say, skin in the game in Finnish society, then
let's take, say, now, some cold American capitalist, well they
can just blurt out that AI said with some 3% probability we can get
this deal cancelled. And let's file, uh,
a dispute, so, uh, that AI work also does these kinds of, like, of course from those then
some Finnish lawyer might bill quite a lot, but, uh, what happens is that
the cost of, like, uh, carrying out legal work has gone down,
so that in a way you can, uh, like, take on a really low-probability
case anyway, because that AI then does that, uh, cheaply, and there
the quality doesn't matter that much either. I think this is going to become more common,
this kind of, like, spamming, legal spamming. I don't know if you're already seeing
a bit of this — well yeah, I mean, you do see some of it
to some extent, you can see it in what's been reported publicly too, that
appeals or other things get made, that they're able, like, to file. But then also
this kind of interesting phenomenon, that, that, uh, also then in some clients'
cases, say, it might come, like, like, AI clearly
used, you might even get, like, like, in a way, an unnecessarily large amount of
materials, unnecessarily extensive comments, that we then have to
like — that sometimes this AI actually, it kind of feels like, produces for us
extra work at times. Of course we can then also use AI in that
analysis, but if in the old days, like, in a way, when
there were questions from us to the client, it might have been a couple of
couple of pages, quite concise, and then talk it over on the phone in more detail. Now
you might get 20 or 200 pages, which as such is quite on point, but we don't, we
have to somehow process it, in order for us to grasp it, but
interesting, like, in a way, like, phenomena
always, always kind of feels like, like every week or month there comes
up something, something a bit, like, new kind of thing, just from this, this
because of this development. Good. Thank you, Janne Juusela, for having
watched or listened this far, so go ahead and subscribe to the channel, and
let's move over to the [unclear] side. Let's talk a bit more about this, uh,
legislative drafting, and indeed, like I said, my fine moment was this, uh,
[music] drafting this [unclear], as well as, uh,
you're, uh, active over on that side, so let's continue with a few more words
on the insider [music] side. Thank you.
Thank you. M.