At present, businesses in Finland can deduct the cost of many investment goods from taxable income only gradually over several years. Higher expensing limits would allow them to deduct investments costs faster, while full expensing would allow them to deduct the cost of investment goods in full in the year they are purchased. In this report, I explain how investment expensing rules affect the profitability of investment and the neutrality of the corporate taxation and discuss how higher expensing limits or a move to full expensing would likely affect investment and public finances in Finland.
The current relatively low corporate tax rate, low interest rates, and the special tax treatment of dividends from non-listed companies reduce the likely impact of higher expensing limits on aggregate investment. However, the risks to public finances would be small as well. From the point of view of tax neutrality, a permanent move to full expensing should be combined with the elimination of interest deduction for investment loans.