The incidence of companies with employee financial participation schemes grew in Finland in the 1990s. Up to 1990 there was no state-promoted participation system. The introduction of the personnel funds and profit bonus system was one of the first steps in creating the legal framework. This was amended recently by the Personnel Funds Act 934/2010, coming into force in 2011.
This Act concerns mainly the area of deferred profit sharing and the creation of personnel funds. Personnel funds are the only area of workers’ financial participation that is negotiated collectively between trade unions and employers.1 A personnel fund can be established in Finland if the enterprise has at least 10 employees and an annual turnover above 200,000 euros.2 Personnel funds can be founded not only by private companies but also by state-owned companies and other bodies. Overall, the legal provisions on personnel funds were made more flexible by the 2011 reform. 3 Gains from share option plans are fully taxable in Finland. Distributed profits are generally treated as income and subject to income tax.4 Distributed profits from share option plans are taken into consideration when calculating progressive income tax. Companies are obliged to deduct the relevant income tax and social security contributions. Employees must declare income from share option plans in their annual tax declarations. If employees acquire the shares from share option plans after the expiry of the scheme capital gains must be taxed when they are later sold. Capital gains in Finland that exceed 50,000 euros are taxed at a rate of 32%.5 Capital losses due to the sale of employee shares can be set off against tax for up to five years.
In 2011 Finland’s highest administrative court declared that the taxable income from an incentive share participation scheme shall be the value of the shares at the inception of the scheme. This shall also apply if the value of the share participation falls significantly during the holding period.
In Finland it is not necessary to inform or consult employees’ representatives before introducing a workers’ participation scheme or to obtain their assent.6
Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.