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CJEU ruling on the taxation of profit distributed by a Luxembourg SICAV to a Finnish tax resident individual

The preliminary ruling is significant for Finnish individuals investing in UCITS-compliant corporate form funds. KPMG Finland assisted the taxpayer.

KPMG Finland assisted the taxpayer.

Introduction

On 29 April 2021, the CJEU issued a preliminary ruling in the case C-480/19 E v. Veronsaajien oikeudenvalvontayksikkö in which KPMG Finland assisted the taxpayer.

According to the ruling, profit distributed by a Luxembourg SICAV may not be treated more disadvantageously than profit distributed by a Finnish investment fund in the hands of a Finnish tax resident individual, taking into account the free movement of capital within the EU. 

The SICAV was compliant with the UCITS Directive, and thus conducted activity similar to that of Finnish contractual investment funds. Corporate form funds, such as SICAVs, are common in other EU member states and Finnish individuals may also invest in them.

The preliminary ruling is significant for Finnish individuals investing in UCITS-compliant corporate form funds. 

Preliminary ruling in more detail

The matter was subject to interpretation since Finnish investment fund legislation does not allow the incorporation of corporate form funds with variable capital, and Finnish investment funds are always contractual.

Profit distributed by a SICAV has been treated for Finnish tax purposes as dividend income that is taxable earned income for Finnish resident individuals. Earned income is taxed at progressive rates, whereas the profit distributed by Finnish investment funds is taxed as capital income at a flat rate (30/34%).

According to the preliminary ruling, the free movement of capital implies that profit distributed by a Luxembourg SICAV cannot be treated more disadvantageously than profit distributed by a Finnish investment fund in the hands of a Finnish individual investor, purely based on the different legal form of the SICAV and the Finnish investment fund. Nor had any justification grounds been presented for the different tax treatment.

Accordingly, profit distributed by a Luxembourg-based SICAV to a Finnish resident individual should be treated as capital income in the same way as profit distributed by Finnish investment funds.

The Finnish Supreme Administrative Court had referred this matter to the CJEU, and will now issue its final decision based on the CJEU’s preliminary ruling.

According to the ruling, profit distributed by a Luxembourg SICAV may not be treated more disadvantageously than profit distributed by a Finnish investment fund in the hands of a Finnish tax resident individual, taking into account the free movement of capital within the EU.

Significance of the preliminary ruling

The preliminary ruling applied to the taxation of profit distributed by a Luxembourg-based SICAV to a Finnish resident individual and therefore did not directly address the withholding taxation of Finnish-sourced income received by SICAVs.

However, it would seem consistent to treat SICAVs and Finnish investment funds as also comparable with respect to the treatment of Finnish withholding tax. The Administrative Court of Helsinki has referred to the CJEU a matter concerning the Finnish tax treatment of a French SICAV that receives real estate income from Finland.

The preliminary ruling to be issued in this matter should provide more clarity as regards the position of foreign corporate form funds in Finnish taxation.

Contact us

We are here to provide more clarity on the evolving tax and business landscape

KPMG provides tax advisory services regarding collective investment vehicles in different legal forms and their investors in Finland and other countries.

Aki Kokko

+358 45 155 7735

firstname.lastname@kpmg.fi

Pauliina Laine

+358 40 750 6662

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Laura Toivonen

+358 40 706 8075

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Kristiina Äimä

+358 40 839 9142

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