Along with its quarterly economic results, Swedbank yesterday declared its new rules starting this year. Namely: in Estonia, as in other subsidiaries in the Baltics, a new dividends policy will apply, pursuant to which 60 percent of profits will be drawn out. For the Estonian state, this means tax income reaching into tens of millions of euros.
Reaction by Prime Minister Taavi Rõivas, to the new, was swift and joyful. «Swedbank’s new dividends policy means tens of millions of euros of tax income, for Estonia, every year. A decision long waited for,» Mr Rõivas wrote both in Twitter and Facebook.
«This is a basic change of direction, on our banking market, in dividends policy of a major market player. Until now, commercial banks haven’t, as a rule, paid dividends through Estonia – except for Danske in the past few years, and Swedbank last year via its insurance company,» said Aivar Sõerd, member of Finance Committee at Riigikogu. «Obviously, the decision is favourable for Estonia, also revealing that the largest market player desires to apply a responsible business model towards its country of location,» he added.
One of the legends linked to our banking is that the banks which belong to foreign owners take the profits out of Estonia, not paying income tax on it. In reality, the opposite is true.
In January, Postimees wrote that as the foreign owned big banks have not taken dividends out of local subsidiaries – some for years, some never – then they have also not paid income tax to the state, for pursuant to Estonian law enterprises shall not pay corporate income tax as long as they do not withdraw dividends.
Swedbank has already allotted €6m for income tax payments postponed in first quarter, meaning that the bank reckons in needs to pay the state some quarter of hundred million euros worth of income tax.
«Over the years, our operations in Estonia have created an excellent capital base; due to that, Swedbank Group has decided to start paying dividends on profits earned here,» said Swedbank CEO Priit Perens. «True, Estonian law favours accumulation of capital; still, now the time is obviously ripe to also pay the state taxes on profits earned.»
According to Mr Perens, in earlier years Swedbank has paid income tax via subsidiaries, if dividends have been drawn from these. «For instance, for last year we paid €16.3m of income tax into state budget,» he underlined.
Still said he, the recent decision by Swedbank Group is different by nature, as this in no one-off step. «By approving the group’s dividend policy, from now on the Estonian state may yearly count on tax income from us,» said Mr Perens.
Swedbank has paid dividends to shareholders before – back when the company was listed in Tallinn stock exchange and carried the name Hansapank.
SEB has never paid dividends to parent company; still, this may soon change.
«The current dividends policy at the entire SEB Group is to yearly pay over 40 percent of annual profits to shareholders,» explained SEB chief Riho Unt.
«SEB bank is very well capitalised and considering that demand for loans in Estonia is modest, and will be in near future, it is quite probable that SEB bank will be paying dividends as well. Even so, the definite rates will depend on both the economic situation in the nation, and expectations by regulators to secure financial stability in Estonia,» he added.
Danske Bank and Nordea bank being branches of foreign banks, formally-legally they cannot pay dividends.
«At the same time, we pay income tax on profits earned in this country, as we have been doing for years – so also last year, and this year,» said Nordea bank CEO Andreas Laane.
According to Danske Bank chief executive Aivar Rehe, the company paid €10m of income tax in 2013, on profit distribution. In 2012, the corresponding sum was €6.7m.
«Profit distribution is linked to the consolidated taxation accounting at Danske Bank Group; the corresponding decision is taken separately, each year,» added Mr Rehe.