Further to last year’s decision of the Court of Justice of the European Union (CJEU) in the Emerging Markets Series of DFA Investment Trust Company (case C-190/12) (please refer to our Aberdeen e-alert 2014-1), the Supreme Administrative Court of Finland confirmed on 13 January 2015 that the free movement of capital precludes levying withholding tax (WHT) on dividends paid to taxpayers established in a third country.
WHT was levied on Finnish source dividends distributed to a Delaware Statutory Trust (the Claimant), a US regulated and registered Investment Management Company, whereas Finnish publicly quoted limited liability companies do not pay tax on dividend income.
The Court’s Decision
The Court considered that the difference of tax treatments for dividends paid to EU resident and non-EU resident investment funds constitutes a restriction of the free movement of capital and clarified under which conditions such WHT may be levied.
The Court considered that Third Country investment funds may be comparable to domestic limited liability companies or investment funds and made explicit reference to the CJEU’s decision in the Emerging Markets Series case, holding that these entities should be tax exempt in Finland, provided that a regulatory framework for exchange of information exists between Finland and the foreign, and that sufficient information is provided.
The Court further clarified that comparability has to be analyzed on a case by case basis.
Thus, in order to benefit from a withholding tax refund, dividends have to be tax exempt in a corresponding domestic situation. Consequently, investment funds and publicly quoted limited liability companies resident in non-EU Member States should also be exempt from WHT on Finnish-source dividends.
Based on the same decision from the CJEU (i.e. C-190/12 Emerging Markets Series), the Swedish Administrative Court of Appeal (ACA) granted reimbursement to three US Regulated Investment Company (RIC) funds in December 2014.
These decisions have not been appealed during the appeal delay and they are therefore final.
WHT was levied on Swedish source dividends distributed to US RIC funds, whereas it was not the case for Swedish investment funds.
The ACA considered that the funds successfully proved that they were equivalent to Swedish investment funds. The Court further clarified that the levied withholding tax was not neutralized by the tax treaty as the funds could not credit Swedish tax and that this WHT could not be justified.
Thus, the Court ruled that the free movement of capital precluded levying withholding tax (WHT) on dividends paid to taxpayers similar to a Swedish investment funds established in a third country.
We believe that these decisions are very positive signs for non-EU resident investment funds willing to file withholding tax reclaims in Finland and Sweden for year 2010 and subsequent tax years (based on the 5 years time-limitation period).
In addition, these decisions should constitute another incentive for non-EU/EEA investment funds to reclaim taxes in all countries having a discriminatory legislation.
We would advise non-EU resident investment funds to take next steps in this respect.
For further information, please do not hesitate to contact us.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.