There will be legislative changes related to the OECD TRACE Model (“TRACE”) which Finland is the first country to implement. The TRACE will entail changes to the process by which portfolio investors may claim treaty benefits for dividend paid on Finnish shares held on nominee-registered accounts.
Implementation of TRACE in Finland involves the following changes which concern nominee-registered shares (i.e. shares held in omnibus accounts):
— The current simplified tax withholding procedure not requiring detailed identification of the dividend recipient will be abolished.
— A new WHT rate of 35 % will be applied when no information on the foreign beneficiary is available.
— A new 50 % WHT rate will be applied to dividends paid to unidentified Finnish residents already starting from 2020.
— The Foreign Custodian Register will be abolished and replaced by the Register of Authorised Intermediaries.
— Authorised Intermediaries (“AIs”) will need to file TRACE reports on an annual basis.
— An Investor Self-Declaration (“ISD”) will qualify as sufficient documentation for granting the treaty relief, if backed up with sufficient documentation and validated through a reliability test.
The new WHT rules will be applicable to dividends paid in 2021. Under the new rules, the issuer is still the withholding agent as in the current system and thus responsible for withholding but its responsibilities vary as follows:
— If there is an AI in the custody chain, the issuer can rely on the pooled information provided by the AI regarding the applicability of the double tax treaty.
— If there is no AI in the chain, the issuer has the sole responsibility of levying correct WHT and collecting the beneficial owner information.
Registration with the Register of Authorised Intermediaries will begin on 1 July 2020 and registration will come into force and the register will be published on 1 January 2021. A custodian wishing to register as AI and fulfilling certain requirements can file a registration application with the Tax Administration.
Based on registration, a custodian becomes an AI and has the following obligations:
— Identifying of the beneficial owner of the dividend;
— Giving of a TRACE report on an annual basis;
— Providing of further information regarding dividends paid through it when requested by the Tax Administration or the issuer;
— Liability for any unpaid WHT, unless the AI shows that the underpayment was not due to its neglect or reports that the dividend was paid to another AI;
— Possible responsibility for providing necessary information and taking up tax liability on behalf of un-registered custodians (Contractual Intermediaries).
KPMG Finland is happy to provide more information on the impact of the new provisions on custodians and issuers and assist with the AI registration process.
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