Three quarters of such dividends are exempted from taxes, while one quarter is subject to the capital gains tax.
Last Wednesday, a professor of corporate law at Aalto University, Heikki Niskakangas, said the provision could create situations where a business owner is subject to a tax rate of 26 percent on income, which would be taxed at a rate of more than 50 percent in the case of a wage earner.
The monetization of income encourages business owners to take out their earnings as dividends rather than wages.
The corporate responsibility watchdog's resolution takes it one step further: the business owner sets up a holding company that acquires shares in their business to increase the value of the business based on revenue potential - or 'hopes and predictions', as described by Niskakangas.
This allows business owners to mark up the value to allow them to withdraw the maximum of 150,000 euros in dividends.
The arrangement was implemented by three companies, according to Finnwatch. Auri Kananen, the father of WTD Media, is the controlling partner of Natalia Salmela, SP Lifestyle, owned by Sara and Mikko Parikka, and Aurika Cleaning, owned by Auri Kananen.
Salmela has defended the arrangement on social media. She asked on Instagram what she'd like to write on the tv show.
Niskakangas reminds Helsingin Sanomat that unlisted companies in such sectors rarely need to set up a holding company because they have the necessary wealth to take advantage of the offer to the maximum extent.
Besides, Kananen said, the corporate structure was created with the help of a professional to shield against possible legal action in the US. The tax benefits of the arrangement came as a 'bit of a surprise' she said in an interview with YLE on September 5th.
You won't lose all your money but they'll be safe there, she said in a statement to the public broadcasting company.
Politicians and policy makers have characterized dividends as an entrepreneurial incentive that consolidates the solvency of companies and encourages business owners to accumulate wealth in the business before reaping the rewards of their work at a reduced tax rate, said Juha-Pekka Raeste, a political and economic journalist at Helsingin Sanomat.
The tax break affects entrepreneurs who are rich, successful, or who employ different methods to increase the value of their business. The Ministry of Finance said in its tax survey for this year that the benefits are enjoyed almost exclusively by entrepreneurs in the highest income decile.
Unlisted companies paid 2.5 billion euros in dividends in 2021, taxed at a reduced rate.