Finland: Withholding taxes refunded to U.S. partnership - KPMG Global
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Finland: Withholding taxes refunded to U.S. business trust (partnership)

Finland: Withholding taxes refunded to U.S. partnership

The tax administration of Finland granted a refund of taxes withheld on dividends paid to an open-ended Massachusetts business trust (one that was legally a partnership in the United States and registered as a regulated investment company (RIC)).


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The claimant was a U.S. based open-ended investment fund, established as a Massachusetts business trust and registered as a RIC and regulated by the U.S. Securities and Exchange Commission (SEC). Given that the fund was open-ended, it had an obligation to obtain units from a unit-holder upon request. The units were traded on the New York Stock Exchange (NYSE). A separate custodian held the assets of the fund, and the value was determined in accordance with the net asset value at the end of the trading day on the NYSE.

The claimant’s legal form was as a partnership. It was a separate legal entity, and its liabilities were carried by the unit-holder, subject to the value of the “held unit” in the fund. According to U.S. tax laws, the claimant was required to distribute its profits annually to the unit-holders. The distribution was deductible for purposes of the claimant’s taxation so that the claimant was, in practice, tax-exempt. Consequently, the claimant could not claim on its U.S. tax return, a credit for the amount of taxes that were withheld in Finland.

In its claim for a refund of withholding taxes, the claimant submitted that it ought to be treated tax-exempt in Finland because it was comparable to Finnish investment funds that were exempt from tax.

Refund of withholding taxes

The Finnish tax administration granted the refund claim and refunded the amount of withholding taxes plus interest. In its reasoning, the tax administration stated that although U.S. based investment funds are not fully similar to any Finnish entities, they nevertheless could be comparable to domestic investment funds on basis of the investment activities they conducted. Therefore, given its characteristics and attributes, the claimant was found to be comparable to a Finnish investment fund. 

Also, it was noted by the tax administration that there was an effective exchange of information mechanism in place between the Finnish and U.S. tax authorities under the Finland-United States income tax treaty. 

KPMG observation

This action of the tax administration is viewed as representing a significant development because it appears to expand application of Article 63 of the TFEU (EU treaty) to third-country investment funds whose legal form is a partnership. Although this means, in practice, that the fund itself is a flow-through entity whose profits are taxed at the unit-holder level, it nevertheless differs from the structures previously addressed with respect to other U.S. RICs because the fund was a separate legal entity whose unitholders were liable for the fund’s liabilities (similar to instances involving private equity funds). Usually, the liabilities are carried by the investment management company, and the fund itself is not a legal entity; as a result, investment funds that are based as similar structures would appear to be in a good position to claim withholding tax refunds from Finland.


Read a June 2017 report [PDF 32 KB] prepared by the KPMG member firm in Finland


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

Antti Leppänen | +358 (0)20 760 3247 |

Kristiina Äimä | +358 (0)20 760 3698 | 

Aki Kokko | +358 (0)20 760 3803 | 

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