The personnel fund system has been used for decades to encourage long-term investment among ordinary employees, with companies paying a portion of profits into funds managed by the employees themselves. However, some companies began exploiting the system for tax avoidance in recent years, leading to confusion and debate within the industry.
On March 26, the taxman introduced new guidelines that could potentially change the centuries-old taxation practice of personnel fund shares. The details of these guidelines are complex and controversial, with even experts struggling to understand the taxman’s intentions. Some old funds assume that performance bonuses are fully funded, while others allow employees to decide whether or not to fund them. Additionally, confusion surrounds when taxes should be paid on funded rewards due to examples provided by the taxman.
There are concerns about abuse of the system, as some companies have taken advantage of loopholes to minimize taxes for high-income earners. The original purpose of personnel funds was not to serve as a tax avoidance strategy for the wealthy but rather to encourage long-term investment among ordinary employees. Proposed solutions include enforcing a reasonable maximum amount that can be invested annually into the fund regardless of company reward systems, which would address abuse issues and restore its intended purpose.
The exploitation of personnel funds for tax avoidance threatens its existence and undermines its intended purpose of promoting long-term investment among ordinary employees. It is crucial to address these issues and protect the integrity of the system before further abuse occurs.
In conclusion, HS financial editor Anni Lassila deems large-scale tax avoidance through personnel funds short-sighted and foolish. The new guidelines introduced by the taxman have sparked debate within the industry due to their complexity and controversy. There are concerns about abuse by high-income earners who take advantage of loopholes in the system. Proposed solutions include enacting a reasonable maximum annual investment amount into personnel funds regardless of company reward systems, which would restore its original purpose and prevent further abuse from occurring in this way.
