Do Finnish private equity portfolio companies engage in tax planning activities more than their peer companies?

摘要

Purpose:This thesis charts whether portfolio companies tax resident in Finland owned by private equity operators engage more in tax planning activities than Finnish companies without PE backing. Based on intensive public debate and recent trends in tax regulation, PE portfolio companies would strongly engage in tax planning activities to yield profits to their owners with aggressive and barely legal tax planning measures. On the other hand, recent empirical research mostly made with U.S. data suggests that the decision makers of the portfolio companies weigh several factors against the tax savings emerged through tax planning. Badertscher et al. (2011) conduct a research concerning the matter of the topic for U.S. firms. I utilize the methods used by Badertscher et al. (2011) as well as certain other empirical studies as a basis for the development of totally new empirical methods which fit into the Finnish framework of taxation and accounting. In this study, the large data sample allows the accounting for branch-specific differences and more accurate view to actual tax planning measures.Data:The dataset generated for the purposes of this thesis consists of 74991 firm-year samples of Finnish operative companies. The set includes 494 firm-year samples identified to relate to companies owned by either domestic or foreign-based private equity fund. Results:Compared with the subsample formed with the propensity score matching method, companies owned by foreign-based PE funds report in their financial statements 2.4 percentage points and companies owned by domestic-based PE funds 3.4 percentage points less income tax per euro of operating income. The captured tax planning activities have a theoretical calculatory effect of 0.8 per cent to Finnish corporate income tax revenues. The major reason for differences relates to aggressive use of debt including intra-group leverage although also other differences concerning tax planning measures can clearly be identified. The results also show differences between tax planning activities of foreign and domestic PE firms. The results provide several interesting implications for the existing taxation framework. Firstly, according to the results obtained and contrary to public discussion, most of the Finnish PE portfolio companies are in tax paying position subject to considerably higher tax burden than generally anticipated. Additionally, the anticipated modeled fiscal effects of observed tax planning measures are mostly small. Thus, the Finnish legislation process should focus more on increasing economic activity than limiting specific actions with casuistic provisions.