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Finland reins in foreign forest acquisitions

Finland is to amend legislation to rein in forest acquisitions by foreign investors. Finland’s Minister of Agriculture and Forestry Jari Leppä revealed that the amendment is to be adopted at the beginning of next year. Source: Helsinki Times

“We decided during the session to limit the possibilities of forest funds to utilise the deduction,” he said, adding that the decision plugs a loophole in the income tax scheme that had been exploited by at least some forest funds.

The need for the amendment arises from concerns about domestic forests ending up in the ownership of faceless and profit-focused foreign investors, summarised Mikko Tiirola, the chairperson of the Central Union of Agricultural Producers and Forest Owners (MTK).

“Activity in the market has been absolutely wild in recent years, with also a number of foreign players in the mix,” he said.

Funds and institutional investors have utilised their resources and various tax benefits to hoard up to a half of forest areas entering the market in recent years, according to MTK.

In Kainuu and North Karelia, as large a share as 80% of the areas sold have been acquired by forest funds and investors.

“Funds have discovered a loophole in the legislation. Some funds have acquired forest areas to the ownership of jointly owned forests they have set up,” said Tiirola.

Lawmakers, he gauged, introduced the deduction primarily for individuals, estates and jointly owned forests:

“It definitely wasn’t intended for companies or funds.”

The instrument enables forest owners to deduct 60% of forest procurement costs from revenue from forestry activities.

Tiirola reminded that the holdings of a forest fund can be transferred to foreign ownership in a single transaction, as evidenced by the recent sales of two funds: Taaleri has sold 14,000 hectares of forest to France and United Bankers over 18,000 hectares to Germany. The issue, he explained, is that because funds seek to maximise their return on investment, an increase in their holdings may not promote the biodiversity of forests, for example.

The problems associated with the facelessness and short-term interests of owners, in turn, have already been witnessed in the domain of electricity grids, he added.

Leppä viewed that the legislative amendment will rein in the phenomenon at least to some extent.

“This is the first step in this direction. We’ll weigh up additional measures if necessary,” he commented.

He also estimated that the amendment alone will not solve the issues, stating that the government should begin devising a broader reform of forestry taxes to harmonise the tax treatment of funds and private owners.

“We’d be far along if the tax percentage was the same for everyone,” he said.

Aleksi Teivainen of the Finnish Forest Industries cautioned against overstating the concerns. Director Karoliina Niemi reminded that funds are typically a well-functioning form of ownership, as their pursuit of operational efficiency ensures forests are well managed. She also estimated that forest funds have only taken advantage of the tax deduction to a limited extent.

“The most important thing is that forests are managed actively, responsibly and patiently, and that lumber trade is working,” she outlined, calling attention to the importance of securing raw material for the forest industry.

The motives of the buyers can also vary, according to Tiirola.