Finland: Non-resident funds, review of recent tax developments

Developments relating to Section 20a of the income tax law

Developments relating to Section 20a of the income tax law

Updates from KPMG’s Finnish non-resident fund taxation practice include the following.

Case law, administrative ruling

  • The Administrative Court of Helsinki held that a Luxembourg-based SICAV (Société d'investissement à Capital Variable) fund was comparable, under EU law, with a Finnish contractual-based tax-exempt fund, regardless of the difference in the legal form. As a result, the fund was entitled to receive tax-exempt dividend income from Finland and a full withholding tax refund. The fund was open-ended, UCITS* compliant, and its shares were traded on a stock exchange. The Administrative Court’s decision is final.
    • KPMG observation: Tax professionals in Finland expect the decision generally to pave a way for withholding tax refunds for SICAV funds, notwithstanding that the case concerned a period during which Finland still had the avoir fiscal system. Moreover, the line of reasoning in the decision is coherent with other EU law-based positive decisions that concern non-resident corporate form funds.
  • The Finnish tax administration concluded in an advance ruling that a Belgian-listed regulated real estate company (RREC) was comparable under EU law with Finnish listed companies. As a result, the Belgian company was entitled to receive tax-exempt dividend income from its Finnish subsidiary. The background of the case relates to the Finland-Belgium income tax treaty and the EU Parent-Subsidiary Directive under which the Belgian company could not receive tax-exempt dividend income from Finland. The ruling is final.
    • KPMG observation: The case illustrates the flexibility of the jurisprudence in the Aberdeen case as well as that the jurisprudence works on all kinds of listed and private limited liability companies—irrespective of their line of business.

*UCITS (Undertakings for the Collective Investment in Transferable Securities)

Other developments relating to Section 20a of the income tax law

  • The Finnish tax administration interpreted Section 20a of the income tax law and concluded that UCITS funds must have at least 30 investors to qualify as exempt from tax. The interpretation puts UCITS funds in a more “severe position” than a non-UCITS fund that can, under certain criteria when the non-UCITS fund has less than 30 investors, qualify as tax exempt. The new interpretation is contrary to settled EU law-based tax practice. UCITS funds with less than 30 investors need to consider continuing to pursue EU law-based withholding tax benefits in Finland because the interpretation is expected to change in consequence of future case law developments.
  • Regarding the profit distribution criteria of non-UCITS funds with less than 30 investors, it is expected that funds that do not distribute at least three-fourths (¾) of their annual profits before unrealised gains to investors will receive “negative first instance” withholding tax refund decisions unless the funds are not transparent for tax purposes. Taxpayers receiving such negative decisions may want to consider an appeal because the profit distribution requirement is contrary to the settled EU law-based tax practice. The interpretation is expected to change in consequence of future case law developments.
  • Various cases regarding the interpretation of Section 20a are currently pending at different procedural stages.

For more information, contact a KPMG tax professional in Finland:

Dr. Kristiina Äimä | +358 20 760 3698 |

Aki Kokko | +358 20 760 3803 |


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