Foreign investment, international mergers and the 1993 capital income tax reform in Finland

Foreign direct investment in Finland and the 1993 Finnish Capital Income Tax Reform are examined in this article. Under territorial taxation, the most common form of international double taxation relief; the tax reform will encourage new capital investment. New capital investment from the US, which applies worldwide taxation, would be mildly discouraged, and FDI in the form of mergers and acquisitions largely discouraged. In the UK and Japan, the worldwide principle only covers tax rates. Thus, lower statutory taxes have a negative effect on tax expenditure leading to jurther discouragement. Only when international investment is subject to double taxation rather than to a bilateral double taxation treaty do lower statutory taxes encourage FDI irrespective of their form.