Finland: Non-resident corporate funds held comparable to Finnish contractual-based funds (court decisions)

Finland: Non-resident corporate funds

An administrative court issued decisions in four cases finding that U.S.-based corporate funds are comparable with Finnish contractual-based funds under EU law. As a result, the U.S. funds were entitled to receive tax-exempt dividend income from Finland.

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Summary

The four cases concerned umbrella-structured “open-ended” funds that were organized as Maryland corporations and established in accordance with the Investment Company Act 1940. Some of the funds were open (available) to private persons and institutions. Some were open only to institutional investors or other funds. In all four cases, the funds were treated as regulated investment companies (RICs) for U.S. federal income tax purposes.

In the decisions—which became final in October 2020—the court accepted that the funds were “authentic” collective investment undertakings. The court also explained that concerning the legal format, the funds were comparable to a Finnish limited liability company. However, in Finland, limited liability companies are not used for purposes of collective investment because of the Finnish legal and regulatory environment. Therefore, and especially given the open-ended nature of these U.S. funds, the court concluded that the funds were comparable to Finnish funds.

KPMG observation

Tax professionals expect that these court decisions may support the use of non-resident corporate-format funds, since these funds apparently would be treated as being comparable to Finnish contractual-based funds. Currently, in Finland, the situation of corporate-format funds has been challenging—especially for European SICAV (collective investment vehicles) funds that have been entitled to EU law-based tax benefits in very limited situations, unlike contractual-based non-resident funds.

With these decisions from the administrative court, it appears that there would be no reason to treat European corporate-format funds differently from third country-based corporate-format funds. There are also other pending cases before the Finnish courts and the Court of Justice of the European Union (CJEU) that would address the comparability question of corporate format and contractual-based funds.

Non-resident corporate-format funds may continue filing EU law-based withholding tax refund claims in Finland and then appeal any “negative” or contrary decisions denying the refund of withholding tax. The taxpayers in the pending cases on appeal from the denial of refund claims may want to supplement their appeals to reflect the decisions of the administrative court.


For more information contact a tax professional with the KPMG member firm in Finland:

Kristiina Äimä | +358 (0)20 760 3698 | kristiina.aima@kpmg.fi

Aki Kokko | +358 (0)20 760 3000 | aki.kokko@kpmg.fi

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