Table 1:
Optimal imputed rates of return in selected special cases.
| Tax Rates | Parameter s | Optimal Normal Rate of Return | |
|---|---|---|---|
| Simple Case: (τd = τc = τf = τ) | s = 0 | i = (1–τ)ρ | Finland 1993-2004 (original) |
| Case 2A: τd = τc>τf | i = (1–τf)ρ | Ministry of Finance Proposal in 2010 | |
| Case 3A: τd>τc>τf | Current Finnish System (applied from 2005 on) |
Table 2:
Optimal normal rates of return in selected special cases.
| ρ | s | i | Tax rates | s | Optimal normal rate of return, i | Note | |
|---|---|---|---|---|---|---|---|
| Risk-Free Interest Rate, r = 4 % | |||||||
| Simple Case | 0,037 | 0 | 0,026 | τd = τc = τf = τ | s=0 | i = (1–τ)ρ | |
| Case 2A | 0,037 | 0,417 | 0,029 | τd = τc > τf | s>0 | i = (1 – τf)ρ | |
| Case 3A | 0,037 | 0,417 | 0,015 | τd > τc > τf | s>0 | ||
| Risky Interest Rate, r = 9.4 % | |||||||
| Simple Case | 0,080 | 0 | 0,056 | τd = τc = τf = τ | s=0 | i = (1 – τ)ρ | |
| Case 2A | 0,080 | 0,417 | 0,064 | τd = τc > τf | s>0 | i = (1 – τf)ρ | |
| Case 3A | 0,080 | 0,417 | 0,033 | τd > τc > τf | s>0 | ||
Table A1:
Main aspects of the dual income tax systems of Norway, Sweden, and Finland in 2021.
| Norway | Sweden | Finland | |
|---|---|---|---|
| Corporate tax rate (τf) | 22% | 20.6% | 20% |
| Personal tax rate on capital income (τc) | 22% | 30% | 30% up to 30,000 euros, 34% above that |
| Highest MTR on earned income (τe) | 53% (includes ssc) | 66% (employer’ ssc included) | 55% |
| Does net capital income form a separate tax base? | No, capital income from all sources is included in “alminnelig inntekt”, which also includes labor income. It is subject to the flat tax rate of 22%. | Yes, net capital income from all sources forms a separate tax base | Yes, net capital income from nearly all sources is a separate tax base (interest income excluded) |
| Taxation of interest income | Included in taxable capital income | Included in taxable capital income | Final withholding tax, 30% |
| Integration of corporation and personal income tax, main rule | Partial double taxation: dividends and capital gains in excess of imputed normal return included in taxable capital income | Double taxation: dividends are included in taxable capital income | Partial double taxation: 85% of dividends (from listed corporations) are included in taxable capital income |
1 Sources: Selin (2021), OECD: Taxing Wages, https://www.oecd-ilibrary.org/taxation/taxing-wages-2022_f7f1e68a-en
Table A2:
Splitting of income from closely held companies under DIT in 2021.
| Norway | Sweden | Finland | |
|---|---|---|---|
| Which dividends are subject to split/imputed income method? | Dividends (and realized gains) received by individuals from all companies | Dividends received by active owners of CHCs (1) | Dividends of all owners of non-listed companies |
| What income is subject to split/imputed income method | Dividends and capital gains | Dividends | Dividends |
| How is the imputed rate of return determined? | After-tax interest on 3-month gov. bonds; 2021 | Government bond rate plus 9 percentage points; 2021 | Fixed, 8% |
| What is the asset base? | Adjusted purchase price of shares | Adjusted purchase price of shares | Net assets of the non-listed company |
| Other elements | - | The imputed income includes a “wage addendum”. The owner may choose a “simplification rule” instead of dividend split. (2) | - |
| Tax treatment of the imputed normal return on shares (normal dividend) | Tax-exempt | Taxed as capital income at reduced rate of 20% | Up to 150,000 euros, 25% of normal dividend is included in taxable capital income and of the amount exceeding this threshold 85% is included in taxable capital income |
| Tax treatment of dividend that exceeds the normal return (excess dividend) | Excess dividend factored by 1.44 and the amount is included in taxable capital income (alminnelig inntekt). The effective marginal tax rate is 31.68% | Full inclusion as labor income (progressive schedule) | 75% included in taxable labor income (progressive schedule) |
| Highest tax rate on excess dividend | 31.68% (flat rate) | 52% (progressive schedule) | 42% (progressive schedule) |
| Carry-forward rules | Yes | Yes | No |
1 Sources: Selin (2021), Sørensen (2007), OECD Tax Data Base, year 2012
A corporation is considered closely held if 1-4 persons own more than 50% of the votes. An owner of a CHC is considered active if his or her work contribution is important for the firm’s income generation.
Wage addendum: a share of wages paid by the firm is included on top of the imputed capital return. As an alternative to the imputed income consisting of imputed capital income and the wage addendum, the shareholder can choose an allowance with a fixed ceiling (simplification rule; 2012: SEK 143,275). In 2009 around 80% of active owners of CHCs chose the simplification rule. See Alstadsaeter and Jacob (2012) for details.
Table A3:
Optimal imputed rates of return in selected special cases.
| Tax Rates | Parameter s | Optimal Normal Rate of Return | |
|---|---|---|---|
| Simple Case: τd = τc = τf = τ | s=0 | i = (1–τ)ρ | Finland 1993-2004 (original) |
| Case 2A: τd = τc>τf | i = (1–τf)ρ | Ministry of Finance Proposal in 2010 | |
| Case 2B: τd = τc>τf | s=0 | ||
| Case 3A: τd>τc>τf | Current Finnish System (applied from 2005 on) | ||
| Case 3B: τd>τc>τf | s=0 |